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Synopsis : TCS is expected to post a 6-11% YoY net profit growth for Q2 FY25, with revenue likely to rise 7-8%. Key focus areas include deal wins, margins impacted by wage hikes and the BSNL contract, and management’s outlook on future growth. Profit growth is expected to outpace competitors like Infosys and Wipro, though Tech Mahindra may see higher gains. Investors will closely monitor TCS’s commentary on future deals, margin pressures, and interim dividends.
Tata Consultancy Services (TCS), India's leading IT services company, is set to announce its second-quarter (Q2 FY25) results on October 10, 2024. Analysts expect a year-on-year (YoY) growth of 6-11% in net profit, driven by a 7-8% rise in sales. While the company’s margin is likely to remain flat sequentially, market participants will focus on several critical aspects in its quarterly performance. Here are five important points to watch:
1. Deal Wins
TCS is projected to report deal wins worth $9-11 billion for Q2, according to Axis Securities. The absence of mega deals means deal trends in Q2 and Q3 are crucial, particularly for offsetting the potential impact from the BSNL deal in FY26, as highlighted by HDFC Securities. Investors will closely monitor new deal announcements to gauge the company's long-term growth prospects.
2. Ebit Margin Performance
Wage hikes are expected to contract margins by approximately 43 basis points (bps) sequentially, says Axis Securities. In contrast, JM Financial sees TCS facing headwinds due to softer growth in developed markets and the low-margin BSNL contract, potentially leading to flat margins. YoY, Sharekhan expects a slight improvement, forecasting an Ebit margin of 24.9%, up from 24.3%.
3. Revenue Growth
TCS's revenue growth is likely to moderate due to softness in retail and consumer packaged goods (CPG), particularly in the UK and US. HDFC Institutional Equities forecasts incremental weaknesses in these segments despite recent contract wins. Analysts from Nirmal Bang project TCS’s Q2 revenue at ?64,389 crore, a 7.9% YoY increase, which is expected to outperform rivals like Infosys and Wipro.
4. Profit Growth
Nirmal Bang expects TCS to post an 11% YoY rise in net profit to ?12,591 crore, surpassing its major peers such as Infosys and HCL Tech. However, Tech Mahindra might outperform in terms of growth, with a projected 23% increase. Sharekhan offers a more conservative estimate, predicting a 9% YoY rise in TCS's profit to ?11,342 crore.
5. Management Commentary
TCS’s management is likely to offer insights into the health of the US BFSI sector and any potential demand weakness in Europe. Investors will also look for updates on client decision-making processes, deal ramp-ups, and the BSNL contract's impact on future revenue. An interim dividend might be announced alongside the results, adding another layer of interest for shareholders.
Disclaimer: The information provided is based on analyst predictions and market expectations ahead of the official Q2 FY25 results and should not be construed as investment advice. Investors should conduct their own research or consult with financial experts before making any investment decisions.
