TCS Tougher Than Market Challenges: How This Tata Stock Will Perform After Q3 Earnings Report Card?

The country's largest IT firm, Tata Consultancy Services (TCS) looks tougher than the challenging dilemma in the IT sector that is faced globally. Q3 of FY24 was one such example. TCS recorded growth in single digits both in the bottom-line and top-line front, but the performance was resilient and better than expected. This has led many experts to be optimistic about TCS shares.

Dhruv Mudaraddi, Research Analyst, Stoxbox highlighted that TCS' revenue, EBIT, and net profit exceeded expectations.

TCS in Q3FY24 reported a consolidated net profit of Rs 11,058 crore in the quarter ending December 31, 2023, registering a growth of 1.95% year-on-year but a decline of 2.5% quarter-on-quarter. Consolidated revenue came in 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.

Also, TCS continued to record a decline in its headcount to 603,305 as of December 31, 2023, compared to 608,985 as of September 30, 2023. While the company's IT services' attrition was at 13.3% for the last twelve months.

The Tata Group-backed IT giant registered an order book of $8.1 billion by the end of December 2023.

TCS also announced huge rewards for shareholders, not a third interim dividend of Rs 9 per share for investors for FY24 but also declared a special dividend of Rs 18 per share.

Prashanth Tapse, Senior VP (Research), Mehta Equities said, "TCS' Q3 earnings and margins beat street estimates. We were expecting a flattish revenue growth in rupee terms while the company reported earnings that came above expectations. The best thing is despite a seasonally weak quarter with macro-economic headwinds, TCS performed very well on most earnings parameters."

Also, Mudaraddi said, that in Q3FY24, TCS showed tepid revenue growth, attributed to subdued expansion due to ongoing challenges in discretionary spending and furloughs. However, this downturn is expected to be partially offset by the positive impact of previously secured deals that are now in the ramp-up phase. Margins underwent a slight QoQ expansion, driven by the alleviation of supply-side constraints and operational leverage. The sustained momentum in deal wins, particularly fueled by cost optimization initiatives, is expected to contribute positively.

Stoxbox analysts also pointed out that examining the vertical performance, notable growth was led by the Energy, Resources, and Utilities sectors, followed by Manufacturing and Life Sciences and Healthcare. Contrastingly, the Consumer Business Group, BFSI, Communications & Media, and Technology & Services faced challenges. Regionally, the United Kingdom demonstrated significant growth, while North America experienced a decline. India led the emerging markets with robust growth.

Further, Mudaraddi mentioned that within services, TCS's strategic focus is on AI.Cloud, Cyber Security, and Cognitive Business Operations have driven growth. The demand for migration, modernization, and business transformation on cloud platforms, coupled with increased data on the cloud and Gen AI, has fueled the success of AI.Cloud. Strong growth in Cyber Security services across various industry verticals and the sustained demand for Cognitive Business Operations underline TCS's adaptability to evolving client needs.

Technically, Tapse said, TCS stock can cross its resistance above 3800 and stay above this level with an optimistic view for the short term."

On BSE, TCS share price stood at Rs 3,736.20 apiece, up by 0.61% on Thursday. TCS is the largest IT company, and second largest company in India after Reliance in terms of market share. Its m-cap is at Rs 13,67,094.77 crore.

TCS announced its Q3 numbers after market hours on Thursday, and hence, the shares will react to the financial results on Friday.

Overall, Mudaraddi said, the company's continued investments, strategic partnerships, and innovation efforts are poised to strengthen its position and foster sustained growth in the foreseeable future. We will be keeping a close eye on management guidance for future performance and their outlook on the demand scenario in North America and signs of recovery in discretionary projects.

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.