TCS To Kick Off April-June Earnings Season Today: What To Expect

IT major Tata Consultancy Services (TCS) is scheduled to release its earnings for the June quarter after market hours today. Leading brokerages expect TCS, the country's largest IT services exporter, to report strong numbers and, in fact, lead the IT pack in terms of growth. From the company's outlook on margins to commentary on deal wins as well as pipeline to growth in the Europe and Asia Pacific regions, analysts will keenly watch several key details reported by the IT major.

Here is what the Street expects from Tata Consultancy Services' (TCS) quarterly earnings:

HDFC Securities

HDFC Securities expects TCS to post "strong growth", with a revenue of $5,063 million, which marks a growth of 1.8 per cent and 10.3 per cent on a QoQ and year-on-year (YoY) basis respectively.

The rupee revenue is estimated at Rs 33,925 crore, a growth of 5.8 per cent and 14.7 per cent QoQ and YoY respectively, according to HDFC Securities. The EBIT margin is estimated to decline 40 bps QoQ to 25 per cent (a target band of 26-28 per cent) impacted by wage increase (-200bps margin impact) offset by rupee depreciation and efficiency gains.

IDBI Capital

IDBI Capital forecasts TCS to report the highest growth among IT companies at 3.2 per cent QoQ driven by a ramp-up in large deals secured in fiscal year 2018. It expects a cross currency headwind of 120 bps to 190 bps, which may offset part of the uptick in CC (constant currency) revenue growth.

The brokerage forecasts the IT major's EBIT margin (the ratio of earnings before interest and taxes to net revenue) to decline by 115 basis points QoQ impacted by salary increase, partly offset by rupee depreciation.

Investors should watch out for demand outlook for calendar year 2018 budgets, especially for BFS, ramp-up of large-deals, outlook on EBIT margin amid rupee depreciation, large deal wins and growth in large clients, and growth in digital services and commentary on ramp-up of recent deals, IDBI Capital added.

IDBI Capital has an 'accumulate' call on TCS shares.

Edelweiss

Edelweiss expects TCS to lead the growth in IT pack with a quarter-on-quarter dollar revenue growth of 3.1 per cent. Revenue acceleration of TCS is on the cards, but has already been factored in, according to the brokerage. "We estimate TCS to post revenue growth of 3.1 per cent in USD terms and 4.1 per cent in cc (constant currency) terms QoQ (quarter-on-quarter). Revenue growth will be led by ramp-ups in large deals won during the previous two quarters and seasonal strengths," Edelweiss said.

Investors need to watch out for the company commentary on demand outlook and client budgets in BFSI (banking, financial services and insurance), traction in digital services and growth in Europe and Asia Pacific region. Digital is expected to sustain its robust growth trajectory as deal size gains scale. rupee appreciation, robust revenue momentum and better execution is likely to restrict margin decline to 50 bps as first quarter will face the impact of higher visa costs (40 bps or basis points) and wage hikes (180 bps), it added.

Edelweiss maintains a 'HOLD' call on TCS shares citing expensive valuations.