Top five things investors should watch out in TCS Q1FY25 results

Information Technology major, Tata Consultancy Services is set to deliver its financial performance on Thursday July 11, 2024 for the first quarter of fiscal year 2024-25 (Q1FY25). 

The IT services firm is expected to report a single-digit growth in its topline and bottomline for (Q1FY25). The growth is led by recovery in the flow business and clients’ willingness to resume discretionary spending, however, wage hikes will be negatively impacting its margins, analysts said in their preview notes. 

Financial performance: TCS is expected to report a net profit of Rs 11,771-12,140 crore for the June quarter, up 6-9 per cent year-on-year from Rs 11,074 crore in Q1FY24. Sequentially, this could dip by 3-5 per cent. Revenue is forecasted to rise 4-5 per cent year-on-year to between Rs 62,086-62,491 crore, as per brokerage estimates.

Wage hike impact: Most brokerages expect a decline in earnings before interest tax margins for TCS in the range of 140 to 186 basis points quarter on quarter owing to wage revision and likely decline in utilisation rates.

Growth levers: According to those at KIE revenue growth will be driven by ramp-up of strong order signings of earlier quarters. With their estimates including $150 million from the BSNL deal, leading to a marginal growth compared to the March 2024 quarter. Analysts said they expect weak revenues in financial services and telecom segments. 

Management’s commentary: Analysts are also keenly interested in managements commentary on client discretionary spending, fewer deal announcements in Q1FY25, campus hiring, large deals and turnaround in BFSI. Further the state of spending in the impacted North America market, hi-tech & telecom verticals,  pipeline of deals, and levers to defend and increase margins will also be key monitoring points for investors. 

Outlook: For FY25, those at Kotak Institutional Equities foresee a $11-12 billion of deal wins driven by high rate of closures of cost take-out deals with higher renewal components in deals.

“Focus will be on TCS ability to leverage its strengths in 'Run' spends and outperform on revenue growth in FY2025E. TCS also has won quite a few mega deals which can contribute to 2.5 per cent growth in FY2025E,” the brokerage said in a preview note.

At 11:26 AM; TCS was trading 1.62 per cent lower at Rs 3926.25 per share. In comparison, the benchmark BSE Sensex slipped 0.90 per cent at 79,629 levels.