TCS Q3 Results Preview: Tata Consultancy Services (TCS) share price traded volatile in the early trade of Thursday, January 9th, ahead of its Q3 earnings for FY25. The largest IT company of India is going to announce its December 2024 quarterly report after market hours. TCS is expected to report better margins, however, furlough is likely to dent its revenue in Q3FY25.
TCS Share Price:
At the time of writing, TCS share price traded at Rs 4121.20 apiece, up marginally on BSE, with market cap of Rs 14,89,186.73 crore. With its latest m-cap, TCS is the second largest company in India and the largest in IT sector.
TCS' share price is trading in the range of intraday high of Rs 4130.15 and intraday low of Rs 4091.20 apiece. Ahead of the Q3 date, TCS share price stood at Rs 4107.50 apiece on January 8th.
The tech-giant's 52-week high and low is at Rs 4,585.90 apiece and Rs 3,593.30 apiece respectively. Its price-to-equity ratio is at 31.45x, while return on equity is at 56.42%.
5 Key Factors To Know Ahead of TCS Q3 Results:
1. TCS Q2 Report Card:
The giant 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.
2. Q3 Revenue Expected To Decline:
Prabhudas Lilladher in its preview report said, "We expect TCS to report 0.4% QoQ CC growth while in USD terms we anticipate revenue decline of 0.4% QoQ with currency headwind of 80 bps. Q3 revenue will be impacted by furloughs & decline of revenue contribution from the BSNL deal which peaked out in Q2."
3. Q3FY25 EBIT Margins Expected To Rise:
Prabhudas report further said, "EBIT Margins are expected to improve by ~70 bps despite the headwinds of furloughs, as INR depreciation and lower contribution from BSNL would support margins. We expect deal wins to remain steady in the band of USD 7-9 bn."
The Tata Group-backed flagship company is among the top dividend-paying IT and blue-chip stocks. On January 9th, TCS' board to consider and approve the third interim dividend to the equity shareholders for FY25. 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.
5. Factors Surrounding TCS Shares:
As per JM Financial report, TCS was the worst-performing top-5 IT Services stock in CY24. That was not entirely unjustified. It said, "As we had highlighted in our earlier notes, year-beginning USD revenue estimates for TCS did not adequately account for the elevated leakages while building FY24's record deal TCV contribution. An underwhelming 1HFY25, expectations of a muted 3QFY25 (3QFY25 Preview: Furloughs, FX and Fed, 31 Dec 2024) and likely growth deceleration in FY26, as BSNL starts to ramp down, weighed on its PER in CY24."
Also, JM's note added, TCS' PER in CY24 contracted by 2% vs 12-19% expansion in other top-5 peers. Interestingly, TCS' EPS cuts for FY25/26E were one of the least among large-caps. As a result, its PER premium to peers is now at a decadal low. Therefore, JM believes these issues are in the price now.
Lastly, JM's note said, "Improvement in US BFSI and a still cost constraint IT budget environment could lower TCS' growth differential with peers in FY26, in our view. This could lead TCS' PER premium with peers to mean revert. We however maintain a HOLD rating as we find Street's current FY26E USD growth still elevated. Note, we are building similar growth in FY26 as FY25 (4.4%) for TCS vs. acceleration for others. We will turn constructive once we see a more realistic cons. estimate."
Prabhudas Lilladher has recommended BUY for a target price of Rs 4,900 apiece ahead of Q3 results.
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