TCS Q3 preview: Profit may rise 17% YoY; buyback quantum eyed, say analysts

The focus will be on comments on CY22 client budgets, demand trends, supply side pressures and margin outlook.

IT major, Tata Consultancy Services (TCS), is scheduled to announce its December quarter (Q3FY22) results on Wednesday, January 12, 2022, along with considering a share buyback proposal. On an average, the Tata Group company’s net profit may rise 2.5 per cent sequentially, up to Rs 10,200 crore, backed by nearly 4 per cent QoQ jump in revenue.

During Q3FY21, the company had posted consolidated net profit of Rs 8,701 crore and revenue of Rs 42,015 crore. In the previous quarter of the current fiscal (Q2FY22), PAT stood at Rs 9,624 crore.

That said, analysts will focus on comments on CY22 client budgets, demand trends, supply side pressures and margin outlook.

Here’s a quick snapshot of brokerage expectations:

Jefferies

The foreign brokerage firm sees revenue growth of 3 per cent QoQ in constant currency (CC), driven by strong demand and deal ramp ups. Further, aggregate margins are likely to be stable at 25.5 per cent with cost efficiencies and currency benefits absorbing higher supply side costs.



Sharekhan

The brokerage firm expects CC revenue growth of 2.7 per cent QoQ, and cross-currency headwinds of 80 basis points (bps) on the dollar revenue growth. In USD terms, revenue is likely to report growth of 1.9 per cent QoQ and 13.7 per cent year-on-year.

The earnings are likely to be stable led by mid-size deals, with net profit seen rising 1.6 per cent (in dollar terms), and 3 per cent in rupee terms at Rs 9,776 crore. The EBIT margin, however, may decline by 13 bps QoQ.

Motilal Oswal

The brokerage firm sees stable deal wins in Q3 compared to the previous quarter and expects sequential expansion in EBIT margin at 26 per cent (up 4 bps). It also expects a 5.8 per cent QoQ jump in Q3 net profit at Rs 10,200 crore, backed by a 4.6 per cent rise in rupee-revenue on a QoQ basis.

ICICI Direct

The brokerage expects TCS to continue its revenue momentum, even as supply side pressure could restrict margin expansion.

It expects a 2.7per cent QoQ CC growth in revenue on continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies and ramp up in deals. PAT is expected to grow by 3.3 per cent QoQ (Rs 9,941.2 crore) and EBIT margins may expand by 20 bps.

HDFC Securities

The brokerage sees a healthy 5.2 per cent QoQ and 16.4 per cent YoY growth in Q3 net, backed by a 4.2 per cent QoQ and 16.2 per cent YoY increase in revenue. EBIT may rise by 20 bps to 25.8 per cent on a quarterly basis.

Nirmal Bang

The brokerage firm expects TCS to report 3.5 per cent QoQ CC revenue growth, backed by deal wins over the last 12 months. At the same time, they expect growth from deals to moderate significantly in FY22 to around 15.7 per cent from 17 per cent growth seen in FY21. They also expect margins to shrink sequentially on the back of backfilling costs nd possibly lower utilizations.

STOCK OVERVIEW

The stock has outperformed the BSE IT index, so far, during the current calendar year 2022 by rising 1.6 6per cent on a year-to-date basis. In comparison, the sectoral index has slipped 0.7 per cent. However, the counter has underperformed the benchmark Sensex 30 index, which has gained 3.7 per cent, during the period.

As of 10:30 am on Tuesday, the stock was trading just 2.5 per cent shy from its record high of Rs 3,989, touched on October 08, 2021.