TCS Q3 Results Preview: Flat Revenue, Better EBIT Margins Likely; 3rd Interim Dividend Announcement Ahead

Tata Consultancy Services (TCS), the flagship company of Tata Group and the largest tech in India, witnessed massive buying sentiment on Wednesday, January 8, 2025, ahead of its Q3 results for FY25 which is scheduled on Thursday, January 9, 2025. In the quarter, TCS is expected to report lower USD revenue due to furloughs, however, its margins are likely to expand. Additionally, risk-reward is seen to be favourable for TCS.

TCS will also consider dividends on January 9.

TCS Share Price:

After market hours on January 8, TCS stock price finished at Rs 4107.50 apiece, up by 1.97% on BSE with a market cap of Rs 14,86,129.45 crore -- making it the largest IT company in India.

TCS' share price is a couple of hundred away from its 52-week high of Rs 4,585.90 apiece, and it will be closely monitored if Q3 results could drive the stock ahead.

TCS Q3 Results Preview:

As per the regulatory filing, a meeting of the Board of Directors of Tata Consultancy Services Limited is scheduled to be held on Thursday, January 9, 2025, inter alia to approve and take on record the audited standalone financial results of the Company under Indian Accounting Standards (Ind AS) for the quarter and nine-month period ending December 31, 2024.

In its preview note, HDFC Securities said, TCS' growth will continue to be led by the regional markets segment, evident in recent large deal wins.

Meanwhile, Antique Stock Broking has forecasted flat revenue growth in terms of constant currency (CC) for TCS. The brokerage said, "USD revenue growth of -0.7% QoQ with a 70 bps headwind from cross currency. Growth during the quarter is expected to be impacted by furloughs and lower contributions from the BSNL deal. We expect EBIT margin to improve by 40 bps QoQ to 24.5%. Expect deal bookings to remain muted at USD 10 bn."

Furthermore, Kotak Institutional Equities said, "We forecast flat revenues qoq due to (1) a US$30 mn qoq decline in BSNL revenues (the impact on growth will likely be 0.4%) and (2) seasonal weakness due to furloughs. We expect weak revenues from developed markets and strong growth in emerging markets. BSNL should contribute ~3% to revenue growth yoy. We expect a marginal 40 bps qoq improvement in EBIT margins and a 60 bps yoy decline. Muted margins are due to a deterioration in the quality of revenues and currency headwinds. We expect muted deal wins of ~US$9-10 bn due to a lack of mega-deal activity for TCS and the IT industry."

According to Kotak, the focus will be the healthcare vertical, where unanticipated project culls led to a sharp revenue decline of 3.4% qoq in the September 2024 quarter.

Kotak expects investors to focus on --- (1) the outlook in the financial services vertical and any loss of share to insourcing at large clients, (2) the state of spending in the UK and European markets and signs of improvement in demand, (3) reasons for revenue growth underperformance versus the rest of the IT industry ex-BSNL revenues, (4) the outcome of the budgeting exercise undertaken by clients (5) impact of GCC ramp-up on growth of companies and (6) levers to defend and increase margins.

Also, Antique said the key focus area would be on the demand outlook, especially in Europe,
margin levers going ahead, and momentum around deal wins/ pipeline.

TCS earned a consolidated net profit of Rs 11,909 crore in Q2FY25, registering growth of 5% YoY. On the top-line front, revenue climbed 8% YoY to Rs 64,259 crore. In constant currency, the revenue growth came in at 5.5% YoY. Furthermore, TCS posted an operating margin of 24.1% in the Q2 quarter, down by 0.2% YoY. While net margins came in at 18.5%. Notably, TCS bagged net cash from operations to the tune of Rs 11,932 crore, which is, 100% of net profit in the quarter.

TCS Interim Dividend:

The tech giant has informed exchanges that on January 9th, its board of directors will consider and approve the third interim dividend to the equity shareholders for FY25.

Following this, TCS has fixed the record date as well.

It said, "The third interim dividend, if declared, shall be paid to the equity shareholders of the Company whose names appear on the Register of Members of the Company or in the records of the Depositories as beneficial owners of the shares as of Friday, January 17, 2025, which is the Record Date fixed for the purpose."

Earlier, for FY25, TCS paid a second interim dividend of Rs 10 per share and its ex-date was on October 18. The first interim dividend payout of Rs 10 per share was carried out in July 2024.

TCS is a top dividend-paying IT stock. Since October 2004, the company has rewarded investors with 87 dividends, as per Trendlyne data. Its current dividend yield is at 1.83%.