TCS Q1 result preview: From key numbers to deal pipelines-5 key things to watch in IT major’s June-quarter earnings

TCS Q1 result preview: Indian IT bellwether Tata Consultancy Services (TCS) will report its April-June quarter (Q1FY25) scorecard on Thursday, July 11. While the revenue and profit figures will be in focus, investors will keenly observe the management's commentary on demand outlook, deal wins and trends in AI and cloud computing.

The June quarter key numbers for the IT giant may be softer, but this is unlikely to disappoint the market. The focus will be on whether the company sees green shoots in the demand environment, especially with the high likelihood of the US Fed cutting rates in September.

"We expect TCS’s revenue growth to be sequentially in the lower single digits, led by contributions from recent deal wins. However, the company's EBIT margin is projected to contract due to recent wage hikes. The deal pipeline remains robust, focusing on demand recovery in the second half of FY25. Furthermore, management’s commentary on the demand environment would be a key thing to watch out for," said Manish Chowdhury, the head of research at StoxBox.

In the previous quarter (Q4FY24), TCS beat market expectations, and its management hinted that the company would do even better in FY25.

CA Vatsal Vinchhi, an equity analyst of the IT sector at Choice Equity Broking, said TCS may record a modest sequential 1.2-1.4 per cent revenue growth amidst uncertainties.

"Management targets expansion in India and MEA, anticipating faster growth than major markets. Fresh campus hires and operational adjustments are to be prioritised to optimise capacity. Emphasis remains on training in GenAI offerings, with plans to recruit 40,000 freshers in FY25E. Enhancing productivity, utilisation, pricing realisation, and reducing subcontracting costs are identified as margin improvement strategies. The company aims for a margin band of 26-28 per cent going forward," said Vinchhi.

Let's take a look at five crucial things that will be in focus when TCS reveals its Q1 numbers:

1. Key numbers

The company may report a mild rise in profit, but margins may shrink primarily due to wage hikes.

Nuvama Institutional Equities anticipates TCS to deliver a 14 per cent quarter-on-quarter (QoQ) CC (constant currency) revenue growth and 1.1 per cent QoQ USD growth, driven by a recovery in BFSI and continued strength in manufacturing.

But the margin may fall nearly 140 bp QoQ, said Nuvama. The brokerage firm expects deal-wins streak to continue.

Brokerage firm Motilal Oswal Financial Services sees a 1.6 per cent QoQ and 4.8 per cent YoY rise in the company's overall revenue. Reported PAT, as per the brokerage firm, may decline 2.9 per cent QoQ but may show an increase of 9.2 per cent YoY.

"Growth is expected to be 1.6 per cent QoQ CC, led by deal scale-up, including the BSNL deal, which is ramping up as per plan. EBIT margin is expected to contract 150bp QoQ owing to wage hikes in Q1FY25," said Motilal Oswal.

2. Deal wins

Despite a challenging environment, the company reported broad-based deal wins across industries and geographies in the last quarter. While deal wins will be a key monitorable, experts expect the company's deal pipeline to remain strong.

3. Headcount

TCS’ workforce stood at 6,01,546 as on March 31, 2024, according to the company's BSE filing. The company reported reduced attrition at 12.5 per cent and enthusiastic response to its campus hiring. The market will keenly observe the trends of attrition and fresh hiring.

4. Near-term demand outlook

Management commentary on the outlook on demand will be a key focus. Positive commentary on demand trends may revive investors' interest in the stock. The market will see what the management says about the impact of macro headwinds on demand in BFSI, retail, communication, hi-tech and other key segments.

5. Emerging trends in GenAI

With the release of Q4FY24 results, TCS said it had GenAI projects valued at $900 million last year. GenAI is an emerging technology, and the company is going big on it.

In May this year, Natarajan Chandrasekaran, chairman of Tata Sons Ltd, said Tata Group is working on 100 generative artificial intelligence (GenAI) projects that are having a meaningful impact on customer experience, productivity and efficiency across its retail and manufacturing businesses.

Markets will closely monitor management's commentary on deal wins in GenAI segment and its future growth strategy for the sector.

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