TCS Q3 Results Preview: What Analysts Predict for India's IT Giant

TCS Ready to Open the Earnings Season

Tata Consultancy Services (TCS), India's largest IT services company, is set to release its December quarter earnings on January 9, officially launching the earnings season. With market sentiment cautious, analysts predict subdued revenue growth for the IT behemoth, driven by seasonal challenges and higher furloughs. Despite this, operational efficiencies and rupee depreciation could provide some respite to margins.

Shares of TCS have seen a steady decline of approximately 9% in the past month, indicating investor concerns ahead of the results. However, market watchers are keenly awaiting insights into the company’s performance, deal pipeline, and outlook for the upcoming quarters.

Revenue and Profit Expectations

For Q3, analysts project a year-on-year (YoY) revenue growth of 6.7%, translating to ₹64,645 crore. Net profit is estimated at ₹12,405 crore, reflecting an 11.5% YoY growth in EBIT (Earnings Before Interest and Tax).

Average Estimates:

• Revenue: ₹64,645.77 crore

• EBIT: ₹15,830.21 crore

• Net Profit: ₹12,405 crore

These estimates highlight muted sequential growth due to the seasonal effects of furloughs but remain optimistic about long-term trends.

Analyst Projections and Insights

Centrum’s Forecast

Centrum predicts a marginal 0.2% quarter-on-quarter (QoQ) revenue growth in constant currency terms, accompanied by a cross-currency headwind of approximately 100 basis points. Margins are expected to improve slightly, with a 23 basis point increase in EBIT margin due to operational efficiencies.

Key Focus Areas:

• Demand environment commentary

• Deal pipeline updates

IDBI Capital’s Projections

IDBI Capital foresees a 1% QoQ revenue decline in USD terms, attributing it to seasonality and furloughs. However, EBIT margins are expected to rise by 33 basis points due to better operational efficiencies and earlier wage adjustments.

Key Monitorables:

• Total Contract Value (TCV) of deals

• Hiring and offshoring trends

• Banking and European market outlook

Motilal Oswal’s Outlook

Motilal Oswal predicts subdued 0.4% QoQ growth in constant currency terms, largely impacted by furloughs. EBIT margins are anticipated to improve by 40 basis points, supported by operational efficiency and talent development.

Highlighted Risks:

• Weakness in UK/European and manufacturing sectors

• BSNL deal ramp-down by FY26

KR Choksey’s Analysis

KR Choksey expects a YoY revenue increase of 6.8%, with sequential growth remaining flat. The company’s EBIT margins are expected to improve on the back of higher utilization rates and robust deal wins.

Key Factors:

• Strong deal pipeline

• Seasonal slowdown due to furloughs

Systematix’s Perspective

Systematix anticipates flat revenue growth in USD terms, reflecting the seasonally weak Q3. They highlight resilient deal pipelines and stabilization of client challenges in Life Sciences and Healthcare verticals. EBIT margins are forecasted to expand by 50 basis points, driven by talent investments.

Key Observations:

• Growth supported by India, Asia-Pacific, and Europe

• Challenges in the US and Latin America markets

Key Trends to Monitor in TCS Results

Analysts emphasize several critical aspects to watch during TCS’s earnings call:

1. Deal Pipeline and TCV: Insights into deal wins, their size, and conversion rates will be crucial.

2. EBIT Margins: Sustainability of margin improvements amid wage hikes and operational headwinds.

3. Regional Performance: Trends in the US, Europe, and emerging markets.

4. Generative AI: TCS’s investment and strategy in leveraging AI technologies.

5. Sectoral Growth: Updates on Banking, Financial Services, and Insurance (BFSI), as well as other verticals like healthcare and manufacturing.

The Bigger Picture: Challenges and Opportunities

While TCS is expected to face near-term challenges, including muted demand and furloughs, its strong deal pipeline and focus on operational efficiencies signal resilience. Analysts believe the company’s investments in emerging technologies and focus on key growth markets could position it well for long-term success.

Investor Takeaway:
With TCS shares under pressure recently, investors are advised to closely evaluate the company’s commentary on demand trends, pricing outlook, and regional performance.

Eyes on TCS’s Next Move

TCS’s December quarter results are a critical indicator of the IT industry’s performance amid macroeconomic uncertainties. While the company may see muted revenue growth in Q3, its operational strategies and long-term focus on emerging opportunities could shape a robust recovery.

As TCS navigates these challenges, investors and analysts will keenly watch how India’s IT giant adapts to evolving market dynamics, ensuring sustainable growth in the coming quarters.