TCS share price in focus ahead of Q1 result; here’s what 5 top brokerages say

TCS share price climbed nearly 2 per cent in early trade on BSE on Thursday, July 11, ahead of the IT major's April-June quarter earnings. TCS share price opened at ₹3944.65 against its previous close of ₹3909.90 and soon rose 1.8 per cent to the level of ₹3,979.90.

Around 9:30 am, TCS share price traded 1.51 per cent higher at ₹3969.05. The Sensex was 0.13 per cent up at 80,030 at that time.

As of the July 10 close, TCS share price has gained about 20 per cent in the last year against a nearly 22 per cent rise in the equity benchmark Sensex.

Most brokerage firms expect TCS to report a quarter-on-quarter (QoQ) fall in operating margin due to high wage costs. Revenue numbers may see a tepid growth, and some experts believe there may be a sequential drop in profit after tax (PAT).

Apart from the numbers, the focus will be on deal pipelines, attrition rates, performance of key verticals and the near-term demand outlook.

Let's take a look at what five top brokerage firms expect from TCS's Q1FY25 scorecard:

Motilal Oswal Financial Services

Brokerage firm Motilal Oswal Financial Services expects TCS to report 1.6 per cent QoQ growth in CC (constant currency), led by deal scale-up, including the BSNL deal, which is ramping up as per plan.

Motilal said PAT might drop 2.9 per cent QoQ but rise 9.2 per cent YoY.

As per the brokerage firm's estimates, the EBIT margin may contract by 150 bps QoQ due to wage hikes in Q1FY25.

"The deal pipeline should remain healthy. Outlook on near-term demand & pricing environment, BFSI, and deal wins are key monitorables," Motilal said.

Kotak Institutional Equities

Kotak believes TCS's revenue growth would be driven by the ramp-up of strong order signings of earlier quarters. The brokerage firm expects weak revenues in financial services and telecom.

According to the brokerage firm, wage revision and a likely decline in utilisation rates may shrink the EBIT margin by 140 bps QoQ.

"Focus will be on TCS's ability to leverage its strengths in 'Run' spends and outperform on revenue growth in FY25E. TCS has also won quite a few mega deals, which can contribute to nearly 2.5 per cent growth in FY25E," said Kotak.

"We expect investor focus on (1) the outlook in financial services vertical and any loss of share to insourcing at large clients, (2) the state of spending in the impacted North America market and financial services, hi-tech and telecom verticals, (3) pipeline of deals, (4) state of discretionary spending and what would it take to revive the same, (5) the impact of GCC ramp-up on the growth of companies, and (6) levers to defend and increase margins," said Kotak.

Nuvama Institutional Equities

Nuvama anticipates TCS to deliver 14 per cent QoQ CC revenue growth and 1.1 per cent QoQ USD growth, driven by a recovery in BFSI and continued strength in manufacturing.

"Margin should fall nearly 140bp QoQ due to wage hike. We expect the dealwins streak to continue. Commentary on client spending and discretionary spending shall be keenly sought," said Nuvama.

JM Financial

JM Financial expects CC revenue growth to be 1.4 per cent with a 30-bps cross-currency headwind, translating into 1.1 per cent QoQ USD revenue growth.

"Wage hike is the major margin headwind for TCS. We, however, expect its impact to be partially offset by operational efficiencies– utilisation, pyramid, etc. One-time penalty (up to $194mn) due to an adverse judgement by a US district court could impact reported earnings," said the brokerage firm.

ICICI Securities

The brokerage firm expects TCS to report a 1.7 per cent USD and 1.8 per cent CC QoQ revenue growth driven by traction in BFSI, retail (consumer business group) and hi-tech from the deals announced in Q1.

It expects the EBIT margin to decline by 186bps QoQ due to higher employee costs—a wage hike effective April 1, 2024, and a double-digit hike for high performers.

"We await management commentary on (1) enterprise discretionary spending, (2) fewer deal announcements in Q1FY25, (3) campus hiring, (4) large deals, and (5) turnaround in BFSI," ICICI said.

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