The IT sector biggie, Tata Consultancy Services (TCS) will kickstart the earnings season with its numbers scheduled to be announced today. Experts are of the view that the third quarter is usually a soft one due to seasonality. Also, investors need to keep in mind the challenging economic environment as analysts predict a modest recession this year.
Some brokerages expect large companies to do better than the midcap ones.
Companies with high exposure to Europe will benefit from the tailwinds from the euro/dollar movement in Q4. Within the top-5, TCS and Wipro have higher exposure to Europe, within the midcaps, Mastek, KPIT, Coforge, FSOL and Cyient have higher Europe exposure, said Anand Rathi.
BNP Paribas expects TCS’ revenue for December 2022 quarter to come in at $6,974 million – up 1.4% quarter-on-quarter, due to the impact of usual seasonality. In rupee terms, it expects the IT major’s revenue to grow 3.1% (QoQ) to ₹570,293 million.
Meanwhile, Anand Rathi expects TCS’ revenue in US dollar terms at $6,978 million and PAT to come in at ₹10,943 crore.
Axis Securities expects revenue in rupee terms to come in at ₹57,280 crore – a growth of 3.6% over ₹55,309 crore in quarter ended September 30.
Also read: TCS share price jumps 3% ahead of Q3 earnings
HDFC Securities expects TCS to report Q3 revenue of $6,958 million – an increase of 1.2% quarter-on-quarter and in rupee terms, revenue is expected to come in at ₹57,058 crore.
The brokerage expects moderate growth, aided by ramp up on large deal wins in the previous quarters, but margins could remain flat due to moderation in supply side constraints.
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The brokerage expects Q3 EBITDA margin at 26.6% versus 26.2% in the second quarter of FY23.
BNP Paribas expects EBIT margin to grow 33bps (QoQ) to 24.3% as supply-side challenges ease and utilisation and productivity levers kick in.
Stock Target Price
In terms of stocks, our top picks are TCS and Infosys for their digital capabilities and execution track record, BNP Paribas said.
BNP Paribas has a buy rating for TCS with a target price of ₹3,314.65. “Downside risks to our DCF-based TP are: 1) sharper-than-expected decline in global economic activity and GDP growth, 2) margin pressure from higher competition, 3) moderation in demand leading to higher-than-expected impact on margin and 4) sustained appreciation of the INR vs the USD,” said the broekrage.
What to watch out for:
– Medium-term industry demand trends and impact of macro headwinds on demand
– commentary on US and Europe markets
– deal wins; deal pipeline
– margin guidance
– pricing scenario
TCS has already announced that the board of directors will consider the third interim dividend for FY23 on January 9. The company has fixed January 17 as the record date to determine eligible shareholders for the third interim dividend.
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