TCS stock rises 3% ahead of Q3 results; here’s what to expect

The shares of Tata Consultancy Services (TCS) gained over 3% in early trade on Monday, in sync with the broader market as well as IT index, ahead of the third quarter earnings scheduled to be released post market hour today. TCS, the country’s largest IT company by market capitalisation, is likely to report moderate growth in the December quarter of the current fiscal, which is usually a weak one for the overall IT sector. In Q2FY23, TCS posted a 18% YoY growth in its revenue at ₹55,309 crore, while net profit rose 8.4% YoY to ₹10,431 crore. The operating margin, however, contracted by 1.6% YoY to 24%.

Ahead of Q3 earnings, TCS share price opened 1% higher at ₹3,243.90, against the previous closing price of ₹3,212 on the BSE. In the first two hours of trade so far, the IT heavyweight gained as much as 3.1% to ₹3,313, while the market cap rose to 12.09 lakh crore. The stock currently trades 18% lower than its 52-week high of ₹4,045.50 touched on January 18, 2022, while it is down 13% from its 52-week low of ₹2,926 on September 26, 2022.

TCS shares have delivered a negative return of 15% in the last one year, while it rose more than 6% in the past six months. In the past one month, the IT major has given a flat return as compared to over 2% fall in BSE IT index and BSE Sensex.

What to expect from TCS Q3 results:

TCS, the country’s largest software exporter, will kick off the December quarter earnings season by releasing its numbers today, followed by Infosys and HCL Tech on January 12, and Wipro on January 13.  Given the challenging global economic environment, the IT heavyweight is expected to report single digit growth in its revenue on sequential basis, while margins are likely to improve due to easing of supply side pressure. Investors will also keep a close eye on management commentary on deal momentum, macro impact on revenues, attrition trend, guidance for the next quarter and financial year 2023-24.

Besides, TCS will also consider the declaration of a third interim dividend for the current fiscal to its shareholders. The company recently informed stock exchanges that if a third interim dividend is approved, it will be paid to eligible shareholders, or the ones holding the company’s shares as on the record date. The record date has been fixed as January 17, 2023. So far this fiscal, TCS has declared a total dividend of 1,600% or ₹16 apiece to its shareholders, including ₹8 apiece in July 2022 and ₹8 in October 2022.

According to domestic brokerage ICICI Securities, TCS’ December quarter earnings are expected to be hit by furloughs, which is likely to be higher than in the last couple of years. However, margins are expected to improve QoQ due to the easing of supply side pressure.

“We expect TCS to report CC QoQ growth of 1.5% for the quarter to be aided by continued deal execution albeit growth will be lower compared to strong H1 on lesser working days. A few pockets of BFSI, hi-tech, manufacturing may witness weakness in the quarter due to macro concerns as well as energy constraints in the Europe region,” the agency said in its report.

TCS’ dollar revenue is projected to grow 1.2% QoQ, while rupee revenue is expected to grow 3.5% QoQ, aided by rupee depreciation. The margins are seen improving by 20 bps QoQ aided by easing of supply side pressure, moderation of attrition, and rupee depreciation. Deal momentum is expected to continue while the mix of deals would be skewed towards cost-take out programs, the brokerage said in its report.

BNP Paribas expects TCS' dollar revenue to grow 1.4% quarter-on-quarter to $6,974 million, while ruppe revenue is likely to rise 3.1% (QoQ) to ₹57,029.3 crore. While Axis Securities expects revenue in rupee terms to growth at 3.6% QoQ to ₹57,280 crore, HDFC Securities pegged it at ₹57,058 crore.