TCS Earnings Preview: Q4 Revenue Expected to Surge on Major Deals; Margin and Profitability Set to Rise


In the realm of IT, anticipation swirls around Tata Consultancy Services (TCS) as it gears up to unveil its Q4 FY24 financial results on April 12, initiating the earnings season for tech giants. Despite a backdrop of subdued growth in the IT sector during the fiscal fourth quarter due to sluggish discretionary spends in the Western markets, TCS is poised to shine with robust earnings, led by substantial deal acquisitions, anticipated margin enhancements, and a consistent streak of deal triumphs.

Q4 Revenue Outlook: Poised for Growth

TCS is positioned as the front-runner among large-tier IT firms, propelled by significant deals and a landscape of improving margins. The company’s revenue in rupee terms for Q4 is projected to ascend by 1.5 percent quarter-on-quarter, reaching Rs 61,414 crore, as estimated by a consensus of 10 brokerage forecasts. Furthermore, expectations loom for a 5.8 percent quarter-on-quarter surge in net profit, with the company’s EBIT margin anticipated to climb to 25.3 percent during the January-March period.

TCS’s revenue expansion in Q4 is anticipated to be bolstered by an array of factors, including a sustained momentum in securing lucrative deals, the scaling up of major contracts such as the BSNL deal, and a resurgence in the manufacturing and BFSI verticals. Analysts from Nuvama underscore the role of a recuperating BFSI sector and continued robustness in manufacturing as key drivers for TCS’s revenue growth in the upcoming quarter.

The company’s recent successes in deal acquisitions, particularly the monumental BSNL deal, are expected to exert a substantial influence on revenue growth. Following the consortium’s triumph in securing a Rs 15,000 crore contract from BSNL in May 2023, TCS is poised to capitalize on the full-quarter ramp-up of this monumental deal, alongside the amplification of other significant contracts.

Margin Expansion through Strategic Measures

Forecasts also paint a promising picture for TCS’s operating margin in Q4 FY24, fueled by strategic cost optimizations and a persistent influx of lucrative deals. Analysts project a moderation in subcontracting costs, envisaging a potential expansion of margins by 72 basis points. Furthermore, the easing of supply-side constraints and a reduction in onsite expenses are poised to contribute to margin expansion, as articulated by Axis Securities.

Moreover, the optimization of costs alongside improved utilization rates is anticipated to offset any potential margin pressures stemming from the mega BSNL deal, as highlighted by JM Financial.

Sustaining Deal Momentum: Looking Ahead

Amidst bullish sentiments, expectations remain high for TCS to maintain its winning streak in securing new deals. Axis Securities anticipates deal wins within the range of $7-9 billion for the January-March quarter, while Nuvama echoes sentiments of continued deal triumphs. HDFC Institutional Equities projects a robust booking of deals exceeding $10 billion, with a particular emphasis on substantial contracts in the European market.

As analysts and investors eagerly await the unveiling of TCS’s financial results, attention is drawn towards the management commentary on the FY25 demand outlook, particularly regarding discretionary spending. Vertical commentary on key sectors such as BFSI, hi-tech, and manufacturing is poised to be scrutinized for insights into future growth prospects, underscoring the significance of management insights in shaping market sentiments and investor confidence.

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