How will Margin Pressure Impact TCS Q1?

In the April-June quarter of fiscal year 2024–25 (Q1FY25), Tata Consultancy Services (TCS) is anticipated to see a single-digit increase in revenue and profit over the same period the previous year. This is attributed to a recovery in the flow of business and clients’ willingness to resume discretionary spending. Brokers noted that wage hikes will have a negative impact on TCS’s margins. On Thursday, July 11, 2024, the corporation is expected to reveal its Q1 results.

• Brokerage forecasts suggest that TCS would report a net profit for the June quarter of between Rs 11,771 crore and Rs 12,140 crore, up 6–9% year over year (Y-o-Y) from Rs 11,074 crore reported in Q1FY24.
• This could represent a 3-5% decline sequentially.

TCS Q1 Review: Brokerages Predict Revenue Surge Despite Margin Pressure

The key brokerages were as objective as possible in their expectations for the quarter. Here’s what key brokerages expect:

• Nomura, a global brokerage business, projects 1.5% quarter on quarter (Q-o-Q) in constant currency (CC) revenue for TCS. Over the course of the year, they anticipate a gradual ramp-up of the BSNL project.
• A rebound in BFSI and ongoing strength in manufacturing are expected to propel TCS to record 14% Q-o-Q CC revenue growth and 1.1% Q-o-Q USD growth, according to Nuvama analysts. However, because of the wage increase, they anticipate a 140 bp quarterly decline in the margin.
• Strong order signings from previous quarters will be ramped up, according to people at Kotak Institutional Equities (KIE), which will propel TCS’s revenue growth. According to their calculations, the BSNL purchase will provide $150 million, which will result in a slight increase over the quarter ending in March 2024.

In summary, analysts expressed their expectations of low revenues in the telecom and financial services sectors. Additionally, because of the revised wages and probably declining utilization rates, they predicted a 140 bps Q-o-Q fall in EBIT margin. TCS’s EBIT margin might, nevertheless, rise by 140 bps year over year.

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