Tata Consultancy Services (TCS) is poised to announce its Q3 results later today, and the financial community is eagerly awaiting the company's performance details, especially its outlook on key factors like demand, pricing trends, and the performance of strategic verticals such as Banking, Financial Services, and Insurance (BFSI). Investors and analysts alike will be keen to assess the company’s progress in areas that are central to its growth trajectory, including deal wins and client budget updates for 2025. These elements will be crucial for determining TCS’s future revenue growth and its ability to maintain profitability in the near term.
Revenue Expectations: A Modest Outlook
For the upcoming quarter, analysts expect TCS to report relatively flat constant currency (CC) revenue growth, which would position the company behind its peers like Infosys and HCL Technologies in terms of growth. This subdued performance is attributed to several factors, including a lower revenue contribution from the BSNL (Bharat Sanchar Nigam Limited) deal, which has been a significant driver of growth in the past, as well as the impact of seasonal furloughs that typically affect business volume during this time of year. However, it is anticipated that these challenges could be somewhat offset by the reversal of exceptional items recorded in the previous quarter.
According to Motilal Oswal Financial Services (MOFSL), TCS is expected to report an 8.1% year-on-year increase in adjusted net profit, amounting to Rs 12,730 crore. The firm also projects a 6.4% rise in revenue, bringing total revenue to approximately Rs 64,500 crore. The anticipated EBIT margin for the quarter stands at 24.5%, which reflects an improvement in operating efficiencies despite the revenue challenges. In comparison, Nuvama’s estimates are slightly lower, forecasting a profit of Rs 12,390 crore and revenue of Rs 64,129 crore. Meanwhile, Nirmal Bang expects adjusted profit to be slightly higher at Rs 12,744 crore, and analysts will be closely watching the commentary on BFSI and Hi-tech verticals, particularly the outlook for demand in key geographies such as Europe and the UK.
Deal Wins and Margin Expansion
Deal wins for TCS are expected to fall within the $7-9 billion range, which, while respectable, is somewhat lower than expected given the absence of mega deal activity in the current quarter. This drop in mega deal volumes is seen as part of a broader slowdown in large-scale deal-making in the IT sector, which could be a result of heightened economic uncertainty and cautious client spending. Despite this, analysts are projecting a positive impact on TCS’s margins. They anticipate a margin expansion of 20-40 basis points, driven primarily by operating efficiencies and a reduction in costs related to the BSNL deal.
Elara Securities is forecasting that TCS could see a 40-basis-point quarter-on-quarter improvement in its margin, largely attributed to decelerating costs associated with the BSNL deal and the fact that wage hikes implemented in Q1FY25 will now be largely absorbed. As a result, analysts will be focusing on TCS’s ability to deliver strong operational performance despite a potentially more challenging macroeconomic environment.
Demand Outlook for 2025 and Macro Challenges
One of the primary focal points for analysts and investors will be TCS’s outlook for 2025. Given the macroeconomic challenges in several key markets, such as Europe and the UK, which are facing inflationary pressures and slower economic growth, the demand outlook for the upcoming year will be critical. Investors will be particularly interested in how TCS plans to navigate these uncertainties, including any strategies it has in place for overcoming supply-side challenges, particularly in manufacturing.
In addition to these broader economic challenges, analysts are eager to hear updates from TCS regarding its engagement with emerging technologies such as Generative AI (Gen AI). The growing importance of AI and machine learning across industries has made it a key growth driver for IT companies, and TCS's positioning in this space could be a pivotal factor in its future revenue generation.
The Dividend Announcement: A Key Shareholder Focus
In addition to its quarterly results, TCS’s board will also be considering the declaration of the third interim dividend for FY25. This dividend decision will be closely watched by shareholders, as TCS has a history of being a consistent dividend payer, and any updates on this front could influence investor sentiment. If the dividend is declared, eligible shareholders will receive the payout based on the record date, which is Friday, January 17. Given the company's strong cash position, many investors will be expecting the continuation of its generous dividend policy, even in the face of some revenue challenges.
Sector-Wide Implications: How TCS's Results Will Influence the IT Landscape
TCS's Q3 results will be a crucial bellwether for the broader Indian IT sector, providing insights into the industry's performance and outlook in a challenging global environment. As one of the largest and most prominent players in the IT services space, TCS's results often set the tone for how other companies in the sector, including Infosys, HCL Technologies, and Wipro, are likely to perform. Analysts are anticipating that TCS's performance in Q3 will offer valuable clues on trends in IT spending, particularly as clients navigate economic uncertainties.
While TCS has seen a decline in its share price over the past month, falling by more than 9%, investor sentiment remains cautiously optimistic. As of 1:30 pm today, TCS shares were trading at Rs 4,043.20, reflecting a 1.57% decrease. This drop has fueled concerns among some investors, making the company’s Q3 results all the more significant. How TCS performs against market expectations and how it provides guidance for the future will likely influence not only the company's stock price but also the broader perception of the health of the IT services sector in India.
Overall, while TCS’s Q3 results are expected to reflect a more modest performance compared to previous quarters, the company’s ability to manage costs, leverage emerging technologies, and position itself for long-term growth will be key factors that analysts and investors will be focusing on. The final results, along with insights from the company’s commentary, will provide a clearer picture of TCS’s trajectory as it faces both short-term challenges and long-term opportunities in the evolving global marketplace.
