TCS likely to log highest revenue growth in 9 quarters on weaker rupee

ET Intelligence Group: Tata Consultancy Services (TCS) is expected to report 4% sequential growth in revenue to ₹69,912 crore for the March quarter. It would be the highest growth in nine quarters, buoyed by a 4.6% average quarterly depreciation in the rupee against the dollar, sharpest since the June 2020 quarter when the domestic currency had shown weakness of similar magnitude.

Net profit may grow 2.7% to ₹13,801.4 crore. In dollar terms, revenue is likely to grow by a five-quarter high of 1.5% to $7,618.9 million. The forecast is based on the average of the estimates by ETIG and seven brokerages. The country’s largest software exporter will declare results on Thursday after market hours.

Investor sentiment towards the IT sector is negative currently, impacted by expected disruption due to the improving capabilities of artificial intelligence (AI) platforms and geopolitical tensions in West Asia, which may affect the spending pattern of clients. “While Generative AI represents a structural concern for investors1, the West Asia crisis has raised questions on near-term risks,” mentioned JM Financial Services in a preview report. The broking firm added that rupee depreciation will offer some relief for investors by supporting margins in the near term.

Anand Rathi Share and Stock Brokers noted in a preview report that there was no major change in the demand environment for the sector in the March quarter compared with the previous quarter.

“We expect median sequential constant currency (cc) revenue growth of 0.2-1.5% for the top six and mid cap IT names,” the broker said. It expects 1% sequential cc dollar revenue growth for TCS in the fourth quarter.

TCS is likely to report flat-to-20 bps improvement in the operating margin (EBIT margin) as weaker currency supports realisations. “We expect the EBIT margin to be flat sequentially, as the company is likely to invest benefits from rupee depreciation into sales, marketing and AI capability building,” ICICI Securities mentioned in a report.

The management commentary on client IT budgets, evolving demand scenario around the AI capabilities, and traction in new deal wins will be crucial. At the sector level, FY27 guidance will be an important factor to watch out for. “We expect Infosys’ FY27 guidance to be 2-4% while HCL Technologies IT Services could guide for 4-6% growth,” said JM Financial Services in its report.