TCS shares edge higher ahead of Q4 result; profit, revenue likely to improve

Shares of IT bellwether Tata Consultancy Services (TCS) traded marginally higher, in an otherwise weak broader market, ahead of its fourth quarter earnings report. The country’s largest software exporter is expected to release its financial report for the quarter ended March 2022, post market hours today.

TCS shares opened marginally higher at 3,698 against previous closing price of ₹3,686.85 on the BSE today. The IT major’s shares gained as much as 0.6% to ₹3,711.25, during the session so far. In contrast, the BSE Sensex was trading 260 points, or 0.44%, lower at 59,186, weighed down by losses in IT and technology stocks such as Infosys, HCL Technologies, and Wipro, which fell up to 2%.

TCS shares have underperformed the benchmark index in the past one year, with stock pricing rising 11% in one year as compared to 23% growth in BSE Sensex. It has dropped 3% on a year-to-date (YTD) basis, while it grew more than 2% in one month. In the last one week, TCS stock price has fallen over 3%.

According to domestic brokerage firm ICICI Direct, TCS’ revenue growth momentum is expected to continue in Q4FY22, while margins are likely to take a hit due to higher manpower expenses. The IT heavyweight is expected to register 3% quarter-on-quarter (QoQ) growth in constant currency led by continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies, ramp up of deals. Profit is likely to improve 2.3% QoQ, while revenue is expected to increase 3.1% on sequential basis.

“TCS is expected to register 3% QoQ growth in constant currency, led by continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies, ramp up of deals. Further, cross currency headwind would lead to revenue growth of 2.7% QoQ in dollar terms. In rupee terms, revenue is expected to increase 3.1% QoQ. EBIT margins are expected to decline 20 bps QoQ to 24.8% due to continued increase in employee costs amid high attrition. PAT is expected to improve 2.3% QoQ,” the report highlighted.

Meanwhile, Nomura expects TCS to report 14% year-on-year growth in revenue and expects EBIT margins to remain flat in March quarter of 2022.

As per ICICI Direct report, the overall information technology (IT) sector’s revenue growth is expected to moderate in the March quarter, while margins are expected to take a hit due to continued high attrition. Infosys, and Wipro – the country’s leading software exporters – are also projected to post constant currency (CC) revenue growth in the range of around 3-3.5% QoQ, while HCL Tech is expected to post the weakest growth of 2% on a sequential basis due to negative impact coming in from its products and platforms (P&P) business.