TCS shares end lower ahead of Q4; key things to watch out for

Shares of IT bellwether Tata Consultancy Services (TCS) settled lower ahead of its March quarter earnings set to be released tomorrow. The IT major will kick off the March quarter earnings season on Wednesday with investors expected to keep a close eye on the management’s commentary on growth outlook, deal pipeline, pricing scenario, and demand trends in key verticals such as BFSI, retail, manufacturing, and communications, amid uncertain macro situation.

On Tuesday, TCS shares opened 0.4% lower at ₹3,275 against the previous closing price of ₹3,263.20 on the BSE. Paring opening gains, the IT heavyweight declined as much as 2.1% to hit an intraday low of ₹3,193.20 amid strong volume trade. The stock finally ended 1.5% lower at ₹3,214.25 levels, with 1.04 lakh shares changing hands over the counter as compared to the two-week average volume of 0.79 lakh stocks. The market capitalisation stood at ₹11.76 lakh crore.

At the current price level, shares of the country’s largest software exporter currently trade 14% lower than its 52-week high of ₹3,738.60 touched on April 12, 2022. It hit a 52-week low of ₹2,926 on September 26, 2022.

The country’s second most valued firm in terms of market capitalisation has underperformed the BSE Sensex in the last one year by delivering a negative return of 13% as compared to 2.7% growth in the BSE benchmark. In comparison, the BSE Information Technology index fell nearly 18% during the same period. TCS share has risen over 3% in the past six months, while it fell 2% in the last three months. In the calendar year 2023, TCS share shed nearly 2%, while it dropped over 2% in a month.

According to Axis Securities, the IT services sector is expected to report moderated growth in Q4FY23 in the backdrop of challenging times from world’s largest economies such as the U.S and Europe. Adding to the woes, IT automations in North America and Europe may show delayed spend or may face some spend cuts going ahead.

“We expect IT services to report revenue growth in the range of 0.8%-1.5% QoQ in US$ terms. In rupee terms, we expect the sector to deliver QoQ revenue growth of 1% to 8%. However margins are likely to expand marginally by 50-100 bps aided by easing of supply-side constraints, lower attrition rate, lower onsite cost and moderated sub-con cost,” it said in a report.

Here is what to expect from TCS Q4 results:

The board of the Tata Group company is scheduled to meet on April 12, 2023, to approve financial results for the quarter and year ending March 31, 2023. The board will also consider the final dividend, if any, for the financial year 2022-23.

The Mumbai-headquartered firm is expected to report moderate growth in top and bottom line due to macroeconomic slowdown. The macro situation has worsened in Q4FY23 as compared to the previous quarter due to the ongoing uncertainty in the U.S. and European banking industry, which is expected to impact BFSI (Banking, Financial Services, and Insurance) revenue growth in the near term.

Axis Securities expects TCS to report profit after tax at ₹11,488 crore in Q4 FY23, up 15.7% from ₹9,926 crore in the same period last year. Sequentially, the PAT is projected to grow by 5.9% from ₹10,846 in the December quarter of 2022.

The revenue is pegged at ₹59,456 crore, up 17.5% from ₹50,591 in Q4 FY22. On a quarter-on-quarter basis, it is seen growing by 2.1% from ₹58,228 crore in Q3 FY23.

The operating profit or EBITDA is projected to grow by 19.5% YoY and 5.7% QoQ to ₹15,094 crore during the quarter under review.

The operating margin, which is calculated as earnings before interest and tax (EBIT), is likely to expand by 97 basis points, aided by slowing supply side constraints and favourable currency mix.

In the third quarter ended December 31, 2022, TCS reported a 10.98% rise in its consolidated net profit at ₹10,883 crore as compared to ₹9,806 crore in the December quarter of 2021, led by cloud, cyber security, consulting services and enterprise application services. On a QoQ basis, the net profit rose nearly 4% from ₹10,465 crore in Q2 FY23. The consolidated revenue from operations jumped 19.11% to ₹58,229 crore, compared with ₹48,885 crore in the corresponding quarter of the previous fiscal. In constant currency terms, the revenue rose 13.5% year on year (YoY), led by North America and the U.K., which reported a growth of 15.4% YoY. The operating margin of the company declined 0.5% to 24.5% as compared to the same period last year, while net margin stood at 18.6%.

Among major markets, North America and the U.K. led with 15.4% growth; Continental Europe grew 9.7%. In emerging markets, Latin America grew 14.6%, followed by India (9.1%), Asia Pacific (9.5%), and Middle East & Africa (8.6%).

The board of directors of TCS also declared a dividend for its shareholders for the third straight quarter, proposing to pay an interim dividend of ₹8 and a special dividend of ₹67 per equity share of ₹1 each of the company.