TCS to release Q1 results today: Five key things to watch out for

TCS Q1 results preview: Tata Consultancy Services (TCS) is slated to announce its June quarter numbers for the current fiscal (Q1FY24) on July 12 and thus officially kickstart the earnings season of India Inc. Although it is widely known that TCS, along with other Tier-1 IT companies, will post sombre numbers for the three-month period, the company's forward-looking statement and management commentary on attrition and hiring will be keenly watched. These aside, there are speculations that the K Krithivasan-led company may also announce a share buyback. It must be noted that this will be the first quarterly results announcement under the new CEO, K Krithivasan. His predecessor, Rajesh Gopinathan, tendered his resignation in March of this year.

Here's a list of key things to watch out for in the IT bellwether's quarterly results:

Financials

TCS is expected to report revenue of $7,300 million in US dollars. In rupee terms, the company's revenue is seen at Rs 59,966.6 crore, up 13.7 per cent year-on-year (YoY) and 1.4 per cent on a sequential basis. Its earnings before interest and tax (EBIT) are seen at Rs 14,170.1 crore, up 16.3 per cent YoY but down 2.2 per cent on a quarter-on-quarter (QoQ) basis, as per Nirmal Bang Securities. The EBIT margin is seen at 23.1 per cent for the quarter under review compared to 24.5 per cent in the previous quarter. In the year-ago period, the margin was 23.6 per cent. Profit after tax (PAT) is pegged at Rs 10,855.5 crore, up 14.5 per cent YoY and down 4.7 per cent QoQ, the brokerage added.

Deal wins

The total contract value (TCV) of deals won during the quarter and the timeline of deal closures and deal pipelines will be keenly watched by all the stakeholders. During FY23, the company’s order book stood at $34.1 billion, of which Q4 was $10 billion, led by an all-time high number of large deals.

Commentary on attrition and hiring

As of late, TCS has drawn a lot of flak for its hiring process. Last month, Tata Sons Chairman N Chandrasekaran said it took action against six employees after finding them guilty of accepting favours from certain staffing firms in the appointment of contractual workers. He said the company received two separate whistleblower complaints—one pertaining to the appointment of business associates or contractual workers in the US, and one in India—in late February and March, after which it investigated the allegations. Chandrasekaran said he cannot quantify the favours these employees got, but the banned employees behaved in such a way that they were favouring certain firms.

During FY23, the company added a net of 22,600 employees, of which 821 were in Q4. This took the total number of its payrolls to 6,14,795 from 150 nationalities, with women constituting 35.7 per cent of the workforce. The software major said its attrition rate stood at 20.1 per cent, marginally better than the previous quarters.

Strategy of new CEO

The company's new CEO's strategy will be keenly watched. In his prior role, Krithi was the Global Head of the Banking, Financial Services, and Insurance (BFSI) Business Group and played a key role in building deep customer relationships and mindshare as well as market positioning across geographies, TCS said. Krithi has a bachelor’s degree in Mechanical Engineering from the University of Madras and a master’s degree in Industrial and Management Engineering from IIT Kanpur. He has been with TCS for over three decades.

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Performance of different verticals and geographies

TCS' performance in Technology & Services, BFSI, Manufacturing, Communications & Media, Retail and Consumer and Life Sciences and Healthcare will be closely tracked. Growth in Q4 was led by Retail and CPG (+13 per cent) and Life Sciences and Healthcare (+12.3 per cent). Other verticals grew in the single digits. Technology & Services grew 9.2 per cent, BFSI grew 9.1 per cent, Manufacturing grew 9.1 per cent and Communications and Media grew 5.3 per cent.

Share buyback announcement? 

"We believe TCS could announce a buyback as well," Jefferies said in a note on June 30. If the company announces it, it will be its fifth buyback in six years. "Commentary around the nature or tenure of deals, sales and deal cycles, pricing, vendor consolidation, and attrition would garner attention," it said. "While positives should be taken with caution, negatives could raise concerns." A share buyback, if announced, would be TCS' fifth in six years, the foreign brokerage added.

TCS Share price

Over the last three months, the share price of TCS has risen merely 2 per cent. In comparison, the NSE's Nifty50 has rallied 10 per cent, Trendlyne data show.