How TCS share price may react after Q3 earnings?

In December 2022 quarter, TCS garnered a net profit of ₹10,846 crore attributable to shareholders on a consolidated basis up by 11.02% YoY and 3.98% QoQ. During the quarter under review, the net margin stood at 18.6% for the quarter, whereas the operating margin stood at 24.5% contracting by 0.5% YoY.

On the other hand, TCS consolidated revenue from operations came in at ₹58,229 crore increasing by 19.11% YoY and 5.28% QoQ. In terms of constant currency, the revenue growth was at 13.5% YoY driven by business in North America and the UK. TCS order book stood at $7.8 billion as of December 31, 2022, versus $8.1 billion in 2QFY23.

Emkay Global Financial Services cited management commentary, “we are pleased with our strong growth in a seasonally weak quarter, driven by cloud services, market share gains through vendor consolidation, and continued momentum in North America and the UK. Improved productivity, currency support, and abating supply-side challenges helped expand our operating margin in Q3. This gives us greater confidence in our ability to steer our profitability towards our preferred range, while continuing to invest in building newer capabilities to support our growth and market share gains.”

Further, TCS posted a workforce of 613,974 employees by end of the December 2022 period — which is a net reduction of 2,197 employees compared to a headcount of 616,171 employees in the September 2022 quarter. Meanwhile, TCS’ attrition rate stood at 21.3% on an LTM basis which is lower than 21.5% in Q2FY23. TCS said, the attrition rate “is expected to fall further in the coming quarters.”

On the overall Q3 earnings, Mitul Shah – Head of Research at Reliance Securities said, “TCS reported subdued performance in 3QFY23 with EBIT margin coming in at 24.5%, 38bps below our estimate of 24.9% while its PAT was below our estimate by 3.7%. Revenue grew by 3% QoQ/8% YoY in USD terms to $7,075 million, vs. our estimate of $7,003 million. Revenue growth in CC terms stood at 13.5% YoY and 2% QoQ as against our estimate of 1.4%. EBIT grew by 8% QoQ (up 17% YoY) to Rs143bn while EBIT margin stood at 24.5% (up 52bps QoQ /down 50bps YoY), 38bps below our estimate of 24.9%. “

Emkay Globa expects ‘neutral to positive’ reaction for TCS shares post-Q3 earnings. Among key positives as per the stock brokerage would be — revenue beat, broad-based growth, deal intake at $7.8 billion (book-to-bill ~1.1x), and dividend of Rs75/sh (including Rs67/sh special dividend).

The Tata Group-backed company announced a third interim dividend of ₹75 per equity share including a special dividend of ₹67 per share. The record date for this dividend is fixed on January 17. TCS plans to pay the dividend by February 3rd, 2023.

Further, Shah added, “We believe that IT Services would not remain immune to worsening global macros in terms of rising inflation, economic slowdown, currency headwinds and likely cut on spending. Revenue growth would taper down to high single-digit to low double-digit in FY24E, while QoQ decline in the order book, net employee reduction, elevated attrition, and lower pricing power ahead would lead to a valuation multiple contractions close to its historical averages. We have SELL rating on TCS.”

Also, Manish Chowdhury head of research at Stoxbox said, “TCS results for 3QFY23 mostly beat expectations, except marginal lower margins and PAT. Considering the third quarter to be a seasonally weaker quarter, we believe that the company has delivered on most of the operational parameters as well including decent growth across key geographies and verticals, higher utilization levels and at bay attrition rates. The company also kept shareholders interest in mind by declaring a dividend of ₹75/share. This gains significant prominence, especially considering the fact that the company had earlier came out with a buyback at ₹4,500/share.”

TCS earnings were announced after market hours on Monday. On stock exchanges, TCS was among the top bulls with an upside of nearly 4%.

On BSE, TCS shares closed at ₹3319.70 apiece up by ₹107.70 or 3.35%. TCS is the largest IT firm and the second largest Indian firm in terms of market share. Its valuation on January 9th rose to over ₹12.14 lakh crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.