TCS Q2FY24 earnings to be key test for IT sector

Tata Consultancy Services (TCS), the largest software service exporter in India, will report its earnings for the quarter ended September 2023 on Wednesday, October 11.

The Q2FY24 results for the overall information technology (IT) sector are expected to be muted, in continuation with the previous quarter, analysts said.

The revenue growth for the IT sector likely to be modest dragged by lower discretionary tech spends and delay in execution of deals. However, demand stays solid—likely to show up in strong deal flows yet again— which should translate to a strong recovery in H2FY24, as per Nuvama Institutional Equities.

As far as TCS is concerned, the IT major is expected to deliver 0.5% revenue growth in constant currency terms and 0.3% USD growth, on a sequential basis.

The brokerage expects TCS to report total revenue of ₹59,904.6 crore in Q2FY24 as compared to ₹59,381 crore in the June quarter. In USD terms, the company is likely to post revenue of $7,246 million as against $7,226 million, QoQ.

TCS net profit in the second quarter of FY24 is expected to rise by 1.1% to ₹11,193.4 crore from ₹11,074 crore in the previous quarter.

Earnings before interest and tax (EBIT), or the operating profit, during the quarter is estimated to grow 2.2% sequentially to ₹14,052.8 crore from ₹13,755 crore.

Analysts expect TCS’ margins to improve by 30 bps to 23.5% from 23.2%, QoQ, on the back of wage hike normalisation given in Q1.

Meanwhile, commentary around BFSI, Retail, Telecom and Technology will be keenly watched – as TCS likely has the highest exposure in the Tier-1 set with deep relationships developed over the past several decades in both US as well as Europe.

Moreover, TCS board will also consider a proposal for share buyback in its meeting on October 11. This will be its fifth share buyback in six years.

Earlier, the IT behemoth had conducted share buybacks in 2022 at ₹4,500 apiece with the total buyback valued at ₹18,000 crore. In 2020, 2018 and 2017, TCS share buyback were worth ₹16,000 crore each, all via the tender offer route.

In 2020, the company repurchased shares from investors at ₹3,000 apiece, in 2018 at ₹2,100 apiece, while in 2017, the TCS share buyback price was ₹2,850 apiece.

TCS share price has risen over 10% in the last three months, while the stock has gained more than 11% year-to-date (YTD). In comparison, the Nifty IT index has gained over 11% in three months and more than 13% YTD. Livemint