Tata Consultancy Services (TCS), the leading IT services provider in India, is going to declare its financial performance for the second quarter of the fiscal year 2024 today. This article delves into what we can expect from TCS’s Q2FY24 earnings, its performance amid challenges in the IT sector, and the factors influencing its growth trajectory.
Table of Contents
TCS Share Price: The Anticipation
TCS, as the biggest IT services conglomerate in India, has garnered significant attention from both experts and investors.
Despite securing significant deal wins, it faces the headwinds of weak discretionary spending in the IT sector, which could potentially impact its Q2 performance.
TCS Share Price: The Numbers for this quarter
According to an average of five brokerage forecasts, TCS’s profit after tax (PAT) for the July-September quarter will climb by 3.12 percent quarter on quarter to reach Rs 11,420 crore. The Revenue is expected to increase by 1.5 percent quarter on quarter, reaching Rs 60,270 crore.
Understanding the Challenges of TCS Share Price
One of the key challenges facing TCS in Q2FY24 is the softness observed in the past two quarters. Despite securing major deal wins, profit realization may take time. BNP Paribas attributes the likely slow revenue growth to “the continued impact of a slowdown related to a cut in discretionary tech spending, partially offset by large deal ramp-ups.” Furthermore, Elara Capital highlights that weak discretionary spending in North America and the impact on old managed services deals could dampen momentum.
It isn’t all terrible news, either Certain industries, especially Energy, Lifesciences, and Manufacturing, are expected to increase as a result of the USD 1 billion JLR (Jaguar Land Rover) acquisition. In contrast, the telecoms industry is projected to face new problems.
Risks to Consider
While the large deal wins, especially those related to vendor consolidation, may position TCS in growth leadership, there are risks associated with revenue leakage or project cancellations tied to discretionary projects, as highlighted by brokerage firms.
Margin Expansion
In terms of profitability, TCS is expected to see a 67 basis points sequential expansion in its earnings before interest tax (EBIT) margin, reaching 23.6 percent. This improvement is attributed to operational efficiencies and marks a significant uptick from the 23.16 percent EBIT margin reported in the April to June quarter.
Significant Deal Wins for TCS Share Price
During the second quarter of the fiscal year, TCS experienced a number of noteworthy developments. The firm secured notable deal wins, including an 800 million pound deal with Jaguar Land Rover (JLR) for five years, coming from an existing client. Additionally, there was an 840 million pound deal with NEST, the UK’s largest workplace pension scheme, spanning a decade, announced in June. If the NEST agreement is prolonged, the overall cost of the agreement for its eighteen-year duration would come to £1.5 billion.
Looking ahead, analysts and investors are keen to see how TCS navigates the coming quarters. Axis Securities expects a moderation of subcontractor costs, which could lead to expanding margins. Moreover, they anticipate deal wins in the range of $6-8 billion in the quarter. Key areas of interest include management commentary on new deal ramp-up, visibility going forward, and vertical outlook, such as BFSI, Hitech, Manufacturing, and employee additions.
A Broader Perspective
Beyond the financial numbers, the demand outlook remains critical. While sentiment is gradually turning positive, the uncertainty surrounding discretionary spending continues to linger. Analysts will also closely monitor the impact of GCC ramp-up, any changes in strategy due to organizational restructuring, buyback announcements, or indications of growth versus margin trade-offs. TCS’ peers have adjusted their margin thresholds to defend margins, and TCS might follow suit.
Conclusion of TCS Share Price
There will be intense scrutiny on TCS’s capacity to sustain growth in the face of difficult market circumstances as the firm gets ready to issue its Q2 FY24 earnings report.
Despite the hurdles posed by weak discretionary spending, TCS remains a dominant player in the IT services industry, with significant deal wins bolstering its position. As the data and major announcements come to light, keep a close eye on them since they will offer insightful information about TCS’s future direction in the global IT industry.
Disclaimer: The information in this “Stock Profile” blog post is for informational purposes only. It is not financial advice. Always consult a qualified expert before making investment decisions.
