TCS Q1 revenue may rise up to 16% YoY, say analysts. What brokerages expect

Analysts expect TCS EBIT margin to decline sequentially in Q1 due to higher retention costs, wage revision, and increased travel costs. They peg margins in the range of 100 to 150 basis points (bps).

TCS Q1FY23 preview: IT bellwether Tata Consultancy Services (TCS) will kick-start India's corporate season for the information technology sector on Friday, July 8. The IT behemoth is likely to report revenue growth in the range of 3.6 per cent to 4 per cent in constant currency terms (cc) for Q1-FY23 quarter-on-quarter (QoQ). The YoY growth, however, is pegged between 11 and 16 per cent for the recently concluded quarter.

Meanwhile, the company had reported a consolidated revenue of Rs 50,591 crore in the last quarter (Q4FY22).

For the period under review, analysts expect EBIT margin to decline sequentially due to higher retention costs, wage revision, and increased travel costs. They peg margins in the range of 100 to 150 basis points (bps). Net profit, too, is expected to drop 1.2 per cent quarter-on-quarter (QoQ) to Rs 9,806 crore from Rs 9,926 crore, however, rise 8.9 per cent year-on-year (YoY).

Also Read: Ahead of Q1 results: Sell-off in IT stocks not over yet; TCS can fall 14%

At the bourses, shares of TCS tumbled over 13 per cent so far this calendar year, ACE Equity data show. In comparison, the S&P BSE Sensex has shed over 8 per cent in 2022.

Factors to watch

Investors’ will closely watch out for demand outlook from macro headwinds, update on deal ramp-ups, revenue or margin outlook for FY23, attrition levels, and comments around pricing and performance of top accounts, analysts said.

Here’s a compilation of what top brokerage houses expect from TCS' Q1-FY23 numbers:

Phillip Capital: The brokerage firm anticipates revenue growth of 3.7 per cent QoQ in CC terms to Rs 52,922 crore, driven by strong momentum in digital transformation initiatives. Analysts expect the growth to be broad-based across verticals. However, they expect margins to decline 140 bps to 23 per cent in Q1 due to wage hikes, travel costs, and supply-side pressures. PAT, they said is likely to decline, too, by 0.3 per cent QoQ to Rs 9,899 crore as macro environment dented demand outlook.

IIFL Securities: Pegs revenue growth at 3.6 per cent QoQ in CC terms at Rs 52,387 crore, led by high order book and sustained demand momentum for IT services. However, they anticipate wage hikes and visa costs to dampen margin by 170 bps in Q1.With this, the brokerage firm has suggested investors to ‘accumulate’ the stock, suggesting a target price of Rs 3,450 per share.

Motilal Oswal: TCS, analysts at Motilal Oswal said, would be a key beneficiary of long-term structural tailwinds among the technology pack. They expect the company to report an overall revenue growth of Rs 52,300 crore, up 3.4 per cent QoQ and 15.2 per cent year-on-year (YoY). Besides that, EBITDA margin of 26 per cent and EBIT margin of 23.9 per cent is estimated for Q1FY23. With a target price of Rs 3,730 per share, they have retained a ‘buy’ call on the stock.

Sharekhan: Analysts foresee revenue growth of 3.6 per cent QoQ in CC terms to Rs 52,808 crore and 1.8 per cent QoQ in dollar terms to $6,814 million for the period under review. Digital initiatives, deal ramp-ups, and broad-based demand across verticals are expected to drive revenue growth for the IT major. Deal TCVs (total contract values), they said, will shrink to $8.5 to $9.5 billion in Q1FY23 on a sequential basis. However, it is expected to grow 5 to 18 per cent on a YoY basis.

BNP Paribas: Strong deal win momentum and broad-based growth will buoy revenue growth of 4.1 per cent QoQ to Rs 52,685 crore. However, the brokerage firm pegs EBIT margin to contract 42 bps at 24.5 per cent QoQ due to supply-side challenges.