TCS Q4 Results Preview, Dividend 2024: Will Tata Group's Biggest Company Defy Uncertainties Of IT Sector?

Tata Group-backed Tata Consultancy Services (TCS) will be in the limelight on Friday for its Q4 results announcement for FY24, and final dividends recommendation. The outlook for the IT sector is uncertain for both Q4 and the coming months of FY25. The sector is struggling with muted discretionary spending, mixed growth, soft trends, and tepid new large deals. The IT sector is expected to end FY24 on a weak note. But, what about TCS?

TCS in the previous quarter had reported far better growths than street's estimates despite uncertainties prevailing in the sector. Global tech giants are expecting the problems of the IT sector to continue in the coming quarters. BUT, TCS, this company is expected to float above a challenging environment!

In Q4FY24, strong deals are expected to keep TCS' top-line front in the positive, although at single-digit. Further, EBIT margins are expected to expand. Its bottom-line front is also seen as steady!

Ahead of earnings, TCS share price stood at Rs 3,982.55 apiece, up by 0.90% with a market cap of Rs 14,40,921.44 crore on April 10th. The market was closed on April 11 due to a public holiday.

TCS will announce its Q4 results and final dividend for FY24 on April 12.

TCS Q4 Preview:

Deals with government-owned BSNL and Tata Motors' luxury brand Jaguar Land Rover (JLR) are likely to work in favour of TCS' revenue.

In its note, Kotak Institutional Equities said, "We expect 1.7% QoQ revenue growth in c/c. Our estimates include US$150 mn (US$60mn or 0.9% incremental contribution qoq) from the BSNL deal. Revenue growth would be driven by the ramp-up of large deals, including JLR won in the recent past. We expect a 30 bps increase in adj. EBIT margin, aided by an improvement in employee utilization and employee pyramid management. We expect US$10 bn+ of deal wins, aided by a mega-deal and plenty of large deals. The renewal component in deals will be higher, in our view."

Also, DOLAT Capital is expecting constant currency revenue growth to be at 1.4% sequentially for TCS in Q4, driven by contributions from recent deal wins. Meanwhile, OPM is to expand by 207bps QoQ led by op efficiencies. Expect an adjusted OPM of 25.5%.

Along similar lines, Nirmal Bank in its note said, "Expect TCS to report 1.0% revenue growth QoQ in CC terms, backed by strong order inflow of the last 12 months. The headwind will likely be continued compression in the existing book of business (albeit much less than in earlier quarters). It is likely to face cross-currency tailwind of ~50bps on QoQ basis."

Nirmal further expects the EBIT margin of TCS to expand by 60bps QoQ to 25.6%. With sub-con cost already at multiquarter lows and in line with pre-pandemic times (6.8-7.0%), margins will improve on the back of furlough impact reversal from 3QFY24, pyramid restructuring, higher offshoring, higher utilization and driving efficiencies in discretionary expenses.

Nirmal believes TCS deal wins should come in the guided range during Q4FY24. In the brokerage's view, except for the Aviva relationship extension, there have not been any mega-deal deal announcements during the quarter that are >US$1bn TCV. Also, it believes the Ramboll deal is a net new TCV but it is likely sub-US$1bn TCV.

According to Nirmal, commentary around BFSI, Retail, Telecom and Technology will be keenly watched as TCS has the highest exposure in the Tier-1 set with deep relationships in both the US as well as Europe and it has been indicating weakness in these verticals. But it has been calling out for green shoots in BFSI in the 3Q analyst interaction.

Furthermore, as per Kotak's note, the 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 that can contribute to ~2.5% growth in FY2025E.

Kotak's note said, "We expect investor focus on: (1) outlook in the financial services vertical and any loss of share to insourcing at large clients; (2) state of spending in the impacted North America market and financial services, hi-tech & telecom verticals; (3) pipeline of deals; (4) state of discretionary spending and what would it take to revive the same; (5) impact of GCC ramp up on growth of companies; and (6) levers to defend and increase margins."

DOLAT expects revenue in dollar terms to be at $7,390 million for TCS in Q4FY24, up by 2.7% YoY and 1.5% QoQ. In rupee terms, the revenue growth is factored at 3.8% YoY and 1.4% QoQ to Rs 61,412.7 crore. In the bottom line, DOLAT estimates PAT of Rs 12,121.4 crore in Q4FY24, up by 6.4% YoY and 9.6% QoQ.

On the valuation, BOB Caps said, "Despite weak macros, TCS continued to deliver strong TCVs for a straight few quarters and will improve further once clients find more comfort. We believe that margins are likely to improve in FY25 on the back of subcon, utilisation, productivity and easing of supply-side pressure."

Lastly, BOB Caps' added, "We believe TCS will continue to demand a premium with regard to its peers mainly due to its diversified portfolio, management stability, strong margin and market leadership position. We assume coverage on TCS with a HOLD rating with a TP of Rs 4,050 (P/E of 27x for FY26E, ~17% premium to Accenture) due to the recent rally in the IT index.

During Q3FY24, TCS logged a consolidated net profit of Rs 11,058 crore in, registering a growth of 1.95% year-on-year but a decline of 2.5% quarter-on-quarter. Consolidated revenue was at Rs 60,583 crore, which rose by 4.04% YoY and 1.49% QoQ. In constant currency, TCS revenue growth was at 4% YoY. While EBIT margin expanded by 50 bps to 25% in the quarter.

Earlier, for FY24, TCS paid the first and second interim dividends of Rs 9 per share each for which it turned ex-dividend in June and September 2023. Further, it paid a third interim of Rs 9 per share along with a special dividend of Rs 18 per share for which it turned ex-dividend in January 2024.

In FY23, TCS paid dividends of a whopping 11,500% aggregating Rs 115 per share.

Currently, it has a dividend yield of 2.89%.

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.