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Shares of information technology (IT) companies were under pressure with the Nifty IT index down over 3 per cent after Tata Consultancy Services (TCS) reported 185 basis points (bps) sequential decline in earnings before interest and tax (EBIT) EBIT margins to 23.1 per cent for the quarter ended June 2022 (Q1FY23).
TCS was down 4 per cent at Rs 3,134 on the National Stock Exchange (NSE) in Monday’s intra-day trade. Coforge, Mindtree, Larsen & Toubro Infotech and MphasiS from the Nifty IT index were down in the range of 3 per cent to 4 per cent, while Tech Mahindra, L&T Technology Services, Wipro, HCL Technologies and Infosys slipped between 2 per cent and 2.8 per cent on the NSE. At 09:27 AM; the Nifty IT index dipped 3.1 per cent as compared to 0.5 per cent decline in the Nifty50 index.
TCS is one of the leading IT service providers with a presence in BFSI, communication, manufacturing, retail & hi tech.
TCS’ net profit grew 5.2 per cent year-on-year and 2.5 per cent sequentially to Rs 9,478 crore in Q1FY23, but missed the estimate of Rs 9,850 crore, according to the Bloomberg data. Revenue for the quarter came in at Rs 52,758 crore, up 16.2 per cent YoY and 4.28 per cent sequentially.
While the company’s Q1 revenue was ahead of the Bloomberg estimates of Rs 52,486 crore, the margins for the quarter came in at 23.1 per cent, down 2.4 per cent year on year. The impact of salary hikes on margins was 150 basis points, and that for travel cost was 30 basis points. CLICK HERE FOR FULL REPORT
Analyst at ICICI Securities expect margins to be under pressure till FY24, resulting in margin contraction of 30 bps in FY22-24E. New organisation structure, which is aimed at increasing customer stickiness is expected to enhance market share gains. Increase in outsourcing in Europe, vendor consolidation and deal pipeline leading to revenue CAGR of 12.2 per cent over FY22-24E and double-digit return ratios, strong cash generation and healthy payout are key triggers for future price performance, the brokerage firm said in result update. However, it maintains ‘buy’ rating on TCS with target price of Rs 3,785 per share.
Analysts at Nomura have lowered USD revenue growth expectations to 9 per cent YoY from 10.8 per cent earlier factoring in sluggish order bookings and cross-currency headwinds. “We expect TCS to lag Infosys on revenue growth in FY23F. We lower FY23-24F EPS by 1.4-2.5 per cent factoring in lower revenue and margin assumptions,” the brokerage firm said.
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