TCS’ Q4 keeps IT investors in anguish
and expect margins to be in the 25-25.4% range over FY25-27. However, they see limited room for margin expansion from here on. What’s more, subdued hiring and lower sub-contracting costs cuts both ways and while reducing costs it also points to weak demand outlook.
In this backdrop, some analysts have cut their earnings expectations for TCS. For instance, Ambit has further cut its FY25 revenue growth expectations to 5.4% from 7.2% earlier. Also, it’s not like valuations offer comfort.
Lately, widely held expectations of interest rate cuts by the US Federal Reserve gave shares of export-focused Indian IT services companies a boost. But unless that hope actually materializes, it is better to keep expectations lower from IT sector earnings going into FY25. Analysts from Dolat Capital Market believe TCS and other tier-I IT companies are likely to experience a few more quarters of subdued growth before there is any noticeable acceleration in growth.
TCS trades at a rich FY25 price-to-earnings multiple of 25 times, showed Bloomberg data. This is highest among tier-1 peers and appears pricey amid the ongoing demand weakness. After TCS’ mixed bag performance in Q4FY24, in the upcoming days, investor focus will be on FY25 revenue growth guidance by competitors Infosys Ltd and HCL Technologies Ltd.
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