TCS Q1 result tomorrow: June quarter likely to be softer; margin may remain under pressure

Indian IT giant Tata Consultancy Services (TCS) is set to release its April-June quarter (Q1FY25) financial results on Thursday, July 11. According to analysts, India's largest IT services company is expected to have experienced revenue growth surpassing that of the past five quarters, despite a potential decline in profit and margins.

Although the IT giant's key figures for the June quarter may be softer, this is unlikely to disappoint the market. Attention will be on whether the company observes signs of improvement in the demand environment, especially given the strong likelihood of the US Fed cutting rates in September.

According to InCred Equities, TCS is likely to post 4.7 per cent year-on-year growth in revenue at ₹6,21,879 million, as compared to ₹5,93,810 last year same time.

Revenue, EBIT to rise

Meanwhile, in terms of dollars, the revenue is expected to ramp up to $7,457 in the June 2024 quarter as compared to $7,226 a year ago, the brokerage firm said.

TCS's margin is expected to come under pressure, potentially declining by 150 basis points due to wage hikes effective April 1, 2024.

In the previous quarter, the company achieved a margin of 26 per cent, the lower end of their target range of 26-28 per cent, after 12 quarters below that level. However, in Q1 FY25, the margin may slip to 24.5 per cent.

In absolute terms, earnings before interest and taxes (EBIT) are projected to be ₹15,262 crore for the quarter under review, compared to ₹15,918 crore in the same quarter last year.

Kotak Institutional Equities projects a sequential decline in operating margin, citing wage adjustments and a likely drop in utilization rates as contributing factors.

The revenue growth is anticipated to be fueled by the significant order signings from previous quarters. However, the brokerage predicts weak revenues in the financial services and telecom sectors. The adjusted profit after tax (PAT) is expected to rise by 8.7% year-on-year to ₹12,043 crore, despite a 3.4% decline quarter-on-quarter, it said.

Meanwhile, Prabhudas Lilladher anticipates an EBIT margin of 24.9%, which represents a year-over-year increase of 170 basis points but a quarter-over-quarter decrease of 110 basis points.