TCS Q4 preview: IT major expected to lead growth amid ramp up of deals and reversal in furloughs

At a time when the IT services industry as a whole is widely expected to bottom out given the global headwinds and Accenture lately lowered its growth guidance for FY24, TCS is slated to report its Q4 earnings on Friday (April 12, 2024).

While all eyes are set on the IT bellwether's Q4 show, there is widely a view that TCS shall lead the Tier-I IT companies on the back of substantial deal wins in Europe. HDFC Securities in its report stated that deal bookings are expected to be strong for TCS (USD 10bn+ TCV) and steady for the rest with several large deals in Europe.

Further, the brokerage held that TCS within the industry will lead growth at 1.3 per cent sequentially. 

Axis Securities the IT major to report 2.3 per cent growth during the period under review given the reversal in furloughs and ramp-up of the deals. Besides, the moderation in the sub-contracting cost is likely to expand margins by 72 basis points. Deal wins in the sector are expected to be the tune of USD 7-9 billion.

IDBI Capital expects March quarter revenue at the behemoth to come in higher by 1 per cent in constant currency (CC) terms and the positive impact of cross 
currency to the tune of 40 bps. Weak quarter, furloughs, lower discretionary 
spend and delay in deal ramp up is expected to impact revenues, added the brokerage. Nevertheless. it estimates EBIT margin to edge higher by 52 bps sequentially amid higher utilisation and reduced furlough event. 

So, HDFC Securities maintained that growth divergence will continue within the sector and guidance for FY25E is likely to factor in improved H2 performance. Maintain our selective stance on the sector—prefer TCS within Tier-I. it added. On the stock the brokerage has suggested an 'add' call with a target of Rs 4450, implying potential gains to the tune of nearly 13 per cent.

InCredit Equities believes that Recovery in the FSI vertical and ramp-up of the BSNL deal could aid growth. Absence of provision for EPIC Systems could aid sequential PAT, it added.

Things to watch out for 

Axis Securities sees the key monitorables to be deal total contract value or pipeline, pricing scenario and outlook on growth and margins. While other key watch-outs in the company's Q4 earnings are are the strategy of the CEO in driving growth; TCV of deal wins; deal pipeline conversion trend; hiring & offshoring,  outlook on EBIT margin and its sustainability;  commentary on long term digital trends;  trends in Generative AI; Banking, US & Europe outlook  trend in cost take out deals and  ACV trend indication in addition to the outlook on budget, macro & FY25E.