TCS Q2 Results Preview: Softer Revenue Growth Likely; Buyback, Dividend Recommendation To Watch Out

Tata Consultancy Services (TCS) although volatile traded near its 52-week highs on Tuesday ahead of its September quarter results for FY24. All eyes will be on TCS' performance under the recent tighter macro conditions. In Q2FY24, TCS is expected to see softer growth in top-line driven by healthy deal wins. However, the tech giant's BFSI segment is likely to be under pressure, alongside continued weakness in discretionary spending. Nevertheless, EBIT margins are likely to expand in the quarter.

Apart from this, shareholders will keenly watch TCS's buyback proposal and second interim dividend recommendation for FY24.

At the time of writing, TCS traded at Rs 3,635 apiece, down by 0.06% on BSE. The company did touch an intraday high of Rs 3,650 apiece in the early deals before correcting. Both price levels are just a couple of rupees away from its 52-week high of Rs 3,680 apiece.

TCS, the largest IT company and second largest firm in India in terms of market share, has a face value of over Rs 13.29 lakh crore currently.

As per the regulatory filing, on October 11, the TCS board will consider a proposal for the buyback of equity shares of the company. The last buyback offer by TCS was Rs 18,000 crore in 2022, followed by Rs 16,000 crore buyback each in 2020, 2018 and 2017.

Another reward that TCS is all set to give its equity shareholders would be a second interim dividend for the financial year 2023-24. Earlier, for FY24, TCS paid the first interim dividend to the tune of 900% amounting to Rs 9 per share. In FY23, TCS paid an eye-bulging 11,500% totaling Rs 115 per share.

Coming to the Q2 results, the same will also be announced on October 11th.

What to expect from TCS Q2 earnings?

IIFL Securities in its Q2 preview note for TCS said, "We forecast revenue growth of 1.2% cc QoQ in 2Q, as ramp up of previously won deals is partially offset by continued weakness in discretionary spend. Margins should expand 80bps QoQ, due to the absence of visa costs and continued easing supply side. We expect deal
wins to remain strong, driven by large cost take out deals."

Meanwhile, for TCS in Q2FY24, JM Financial built in a 1% QoQ c/c revenue growth with ~20 bps cross currency headwinds translating into a 0.8% QoQ USD revenue growth. The brokerage also expects EBIT margins to improve by 24 bps QoQ aided by rupee depreciation and operational efficiencies. However, the brokerage also said, "We have not built any wage hike in Q2 as the company has deferred wage hike; though it is baked in FY24 margin guidance."

Also, Incred Equities highlighted that TCS is expected to witness softness in FSI, while hi-tech and discretionary projects impact growth. Further, Incred explained that operational efficiency, absence of wage hike impact and moderation in sub-contractor expenses aid EBIT margin.

Furthermore, HDFC Securities believes in tier-1 IT segment, TCS will be among to lead the performance as the company is expected to report top-line growth of over 1.6% sequentially. In terms of margins, TCS is also seen to outperform its many peers in the quarter.

In Q2FY24, HDFC Securities predicts TCS revenue to come to around Rs 60,565 crore, up by 2% QoQ and 9.5% YoY. Adjusted PAT is expected at Rs 11,530 crore, up by 4.1% QoQ and 10.5% YoY. EBIT margin is seen at 24.1% in the quarter, expanding by 94 bps sequentially and 9 bps year-on-year. Also, EBIT is seen at Rs 14,597 crore, with growth projected at 6.1% QoQ and 9.9% YoY.

Similarly, IIFL Securities expects TCS revenue to be at Rs 60,086 crore, up 1.2% QoQ and 8.6% YoY. EBIT is estimated at Rs 14,304.5 crore, with margins at 24%. PAT is forecasted at Rs 11,374.3 crore in Q2FY24, up 2.7% QoQ and 9% YoY,

Key comments to watch on October 11th are -- 1) Strategic changes under the new CEO. 2) Deal-win TCV and nature of deals. 3) Outlook by vertical through FY24. 4) Potential margin levers through FY24. 5) Capital allocation and clarity on buyback in FY24.

During the June quarter of FY24, TCS recorded a net income of Rs 11,074 crore, up by 16.8% YoY with a net margin of 18.6%. Revenue stood at Rs 59,381 crore, soaring by 12.6% YoY. In constant currency, the revenue growth was at 7% YoY. Operating margin also expanded in the quarter to 23.2%.

Also, TCS revised its FY24 revenue guidance to 5% in July against the earlier 7% guidance.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.