TCS has come out with soft March quarter results, as revenues and margin both failed to meet the Street expectations
TCS Share Price: Tata Consultancy Services (TCS) has come out with soft March quarter results, as revenues and margin both failed to meet the Street expectations. Shares of India’s top IT exporter were seen trading lower in Thursday’s opening deals. The script was trading 1.28 per cent lower at Rs 3,200.00 per share on the NSE.
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The company reported a profit of Rs 10,846 crore in the December 2022 quarter.
Consolidated revenue from operations came in at Rs 59,162 crore, up 16.9 per cent, from Rs 50,591 crore in the year-ago quarter. It stood at Rs 58,229 crore in the December quarter of FY23.
Analysts had estimated the Tata Group company to report 2.1 per cent quarter-on-quarter (QoQ) growth in revenue, while net profit was projected to increase 6.2 per cent QoQ in the January-March quarter.
In constant currency (cc) terms, the revenue rose 10.7 per cent year-on-year (YoY), the company said.
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Nomura India said TCS’ constant currency (CC) revenue growth of 0.6 per cent was weaker than the consensus estimate of 0.9 per cent CC growth. EBIT margin at 24.5 per cent was also lower than the Street estimate of 25 per cent. While the total contract value (TCV) of $10 billion was in line with expectations, heightened macroeconomic volatility continues to delay the recovery in US across verticals, even as the outlook is improving in continental Europe.
“BFSI clients remain in cash preservation mode, especially after recent volatility in financial markets. Management noted that certain discretionary projects are being deferred or put on hold as clients prioritise those projects which have upfront cost savings. We expect dollar revenue growth of 6.6 per cent in FY24F (vs 8.6 per cent in FY23) and 6.3 per cent in FY25F,” Nomura India said.
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JPMorgan has maintained “underweight” rating on the stock with the target price of 2,700 a share. TCS’s Q4 results missed due to unexpected weakness in the US and continued challenges in Europe, it said. The outlook for TCS has been clouded by client caution driving cuts to discretionary tech spends.
While headline signings are healthy, delayed/deferred discretionary projects will delay billing. The uncertain macro and tech spends should drive a softer H1FY24, pulling down FY24 growth.
JPMorgan has cut its revenue estimate by a percent and margin by 20 basis poins (bps), driving 2 percent EPS cuts.
Foreign broking house Citi has kept “sell” rating with a target price of 3,000 a share. The brokerage said TCS’s Q4 results were weaker than expected and valuations are still high.
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Firstly, TCS’s FY23 TTM TCV (total contract value) is flattish YoY compared to over 10 percent YoY growth in FY22, which is a forward-looking indicator.
Secondly, the headcount for FY23 is expected to be over 4 percent YoY versus 21 percent YoY growth in FY22. Finally, the management commentary has turned incrementally cautious, which is also a forward-looking indicator.
With regular wage hikes, margin estimates may need to be revised down, it said.
