TCS Q4 result today: Here are top brokerage expectations on its performance

Analysts say the company's margins are likely to be flat to slightly negative on QoQ basis due to supply side pressures and high employee costs.

The corporate earnings season for the January-March quarter (Q4) of FY22 is set to begin on Monday with IT large-cap Tata Consultancy Services (TCS) slated to announce its numbers for the fourth quarter after market hours today.

Shares of TCS were trading flat on the bourses on Monday. Analysts expect the company to report moderate revenue growth of  2.4-3 per cent in constant currency terms (cc) on a quarterly basis, aided by sustained demand momentum, spending on digital initiatives and ramp-up of deals.

Moreover, its margins, they say, are likely to be flat to slightly negative on QoQ basis due to supply side pressures and high employee costs. The company’s margins were at 25 per cent the previous quarter.

Key monitorables

Investors will closely watch out for the company’s demand outlook for FY23, calendar year 2022 IT budget, deal pipeline, pricing environment considering high inflation and tight labour markets, margin outlook, supply-side challenges and attrition, management commentary on impact on tech spending from ongoing inflation and implications of planned corporate restructuring.

Here’s a compilation of top brokerage estimates on the company’s Q4 numbers:

Jefferies : The brokerage expects TCS to report modest growth with steady margins, with 2.4 per cent QoQ cc revenue growth. It sees TCS margins to fall 20 bps to 24.8 per cent, due to higher supply side costs, which would be partly offset by currency benefits.

IDBI Capital: The brokerage forecasts cc revenue growth of 3 per cent QoQ, partially offset by cross- currency headwind of 30 bps. It further sees the earnings before interest and tax (EBIT) margins to be flat at 25 per cent.

Emkay Global: Analysts at Emkay Global have built in a 2.3 per cent QoQ dollar revenue growth factoring in 40 bps cross-currency headwinds. They, too, expect EBIT margins to remain flat sequentially.

Motilal Oswal: The brokerage says that the company's growth should continue to remain in a narrow band, despite strong demand momentum. Its deal wins should remain stable as compared to Q3.

Prabhudas Lilladher: Here, analysts expect cc revenue growth of 3.1 per cent QoQ as high base effect in the BFSI segment, they say, will kick in because of large deals (Postbank/Prudential) won in FY21.  

Healthy deal momentum is expected to continue with deal total contract value (TCV) composed of mid-size and small deals, they add. Further, EBIT margins may decline by 10 bps.

ICICI Securities: The company is expected to register 3 per cent cc growth on a QoQ basis, led by continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies, and ramp up of deals, the brokerage said.

Further, cross currency headwind would lead to revenue growth of 2.7 per cent QoQ in dollar terms. It expects EBIT margins to decline by 20 bps to 24.8 per cent due to continued increase in employee costs amid high attrition, while, PAT is expected to improve by 2.3 per cent QoQ.

Sharekhan: This brokerage expects cc revenue growth of 2.4 per cent and cross-currency headwinds of 40 bps on dollar revenue growth.

The growth is expected to be driven by higher discretionary spending and digital transformation initiatives. It expects deal TCVs to remain stable on a sequential basis at around $8 billion, led by midsize deals. However, it would decline on a YoY basis due to lack of any large deals, it said.