TCS misses street’s estimates in Q4. How will the stock price react on Thursday?

TCS stock will be split between these factors on Thursday. Market experts believe TCS stock could face pressure on Thursday.

In Q4FY23, TCS posted 14.8% YoY and 5.03% QoQ growth in consolidated net profit to ₹11,392 crore. Revenue from operations stood at ₹59,162 crore up by 16.94% YoY and 1.6% QoQ. Further, the net margins stood at 19.3%, while operating margins came in flat at 24.5%.

Mitul Shah – Head of Research at Reliance Securities said, “TCS reported subdued performance in 4QFY23 with EBIT margin coming in at 24.5%, 59bps below our estimate of 25.1% while its PAT is slightly below our estimate by 1.1%.” Adding he said, “EBIT grew by 1% QoQ (up 15% YoY) to Rs145 billion while EBIT margin stood at 24.5% (flat QoQ /down 47bps YoY), 59bps below our estimate of 25.1%.”

Further, Shah said, “Revenue grew by 2% QoQ/8% YoY in USD terms to US$7,195mn, vs. our estimate of US$7,221mn. Revenue growth in CC terms stood at 10.7% YoY.” He also said, “Its net income stood at Rs114bn (up 5% QoQ/ up 15% YoY) on the back of higher non-operating income, which grew 20% YoY and 126% QoQ. Adjusted margin came in at 19.3%, broadly in line with our estimate of 19.4%.”

Live Updates on TCS earnings here! 

TCS attrition rate stood at 20.1% in Q4FY23 — lower from 21.3% in 3QFY23.

In terms of the order book, TCS recorded an all-time high number of large deals in Q4FY23. The company’s pipeline comes at $10 billion in the fourth quarter. For the full year FY23, the company’s order book comes at $34.1 billion.

Also, in major good news to investors, TCS has declared a final dividend for FY23 to the tune of ₹24 per equity share.

What do experts say about TCS?

Omkar Tanksale, Senior Research Analyst, Axis Securities said, “Revenue for the quarter stood slightly below our expectations at Rs. 59,162 Cr. and showed a growth of 1.6% QoQ. Growth in Q4 was led by Retail and CPG (+13%) and Life Sciences and Healthcare (+12.3%). Other verticals grew in single digits. Technology Services grew 9.2%, BFSI grew 9.1%, Manufacturing grew 9.1% and Communications & Media grew 5.3%. EBIT margins came flat at 24.5% QoQ and net profit for the quarter stood at Rs.11,392 Cr., reporting revenue of 14.8% YoY.”

Urmi Shah, Research Analyst, SAMCO Securities said TCS reported a muted quarter, with a mixed bag of numbers.

Samco’s analyst added, “The company has not managed to sustain its margins, though, for FY23, we see a steep decline of ~200 bps. Growth has been subdued for the quarter with the BFSI segment reporting single-digit growth and ending the year lower compared to the guidance. However, the order book of $10 Billion is at an all-time high, indicating optimism about growth in the IT sector. With the substantial decline in attrition rate, operational costs optimised and the order book remaining strong, it remains to see how FY24 paves out.”

Meanwhile, Manish Chowdhury, Head of Research at Stoxbox believes TCS’ fourth-quarter numbers are mostly on the disappointing side.

Chowdhury said, “In a difficult operating environment, the company reported revenue growth at a multi-quarter low. The company also surprisingly reported flat EBIT margins versus expectations of an improvement. We feel that the North American business remains weak which is visible from dismal net additions in the workforce. The difficult macroeconomic environment is clearly evident from the cautious commentary of the management and would take few quarters before we see normalization in the overall business performance.”

As per TD Cowen, a division of TD Securities, TCS acknowledged a fairly challenging operating environment with its prior expectation of improvement coming out of the year-end not materializing, particularly among US clients. It conveyed a situation nuanced by market (geo & industry) and there is a clear dichotomy between a strong pipeline and order book versus how that converts to revenue with clients demonstrating caution in near-term spending release. It does not see budget cuts or broad cancellations, but cited scrutiny on discretionary spend, project deferrals & some slower progression of work as clients operate w/ more disciplined approach amid uncertainty. Overall, this leaves more questions than answers.

On stock price, Reliance Securities’ 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 IT spending in FY24. Revenue growth would taper down to single digit in FY24E, while tapering revenue growth, limited margin expansion, lower earnings growth, lower pricing power ahead and delay in execution of deals would lead to valuation multiple contraction close to its historical averages. We have SELL rating on TCS.”

Ahead of Q4, TCS share price ended at ₹3,242.10 apiece up by 0.9% on BSE. TCS is the second largest Indian company and the largest in IT sector in terms of market share. As of April 12, the Tat Group-backed company’s market cap stood at over ₹11.86 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.