India’s largest IT services company Tata Consultancy Services (TCS) will on Friday release its financial results for the June 2022 quarter, thus starting India Inc’s earnings season. Analysts said investors need to keep an eye out on the company’s margin outlook, the management commentary on US and European markets. Here’re important parameters the investors need to see in the results:
EBIT Margin
TCS‘ EBIT margins are expected to decline 110 bps quarter-on-quarter to 23.9 per cent due to wage revision in both onsite & offshore; increase in retention costs; some increase in travel costs, ICICI Securities said in a report.
Revenue Growth
Analysts expect the company’s revenue growth momentum to pick up on account of acceleration in deal execution but margins are expected to be impacted by annual salary wage revision effective from April 2022.
“We expect healthy revenue growth of 4 per cent quarter-on-quarter in constant currency given ramp up of strong order book won in earlier quarter. We expected lower growth of 2 per cent quarter-on-quarter in USD terms due to cross currency headwinds of 200 bps,” Prabhudas Lilladher said.
Growth in Key Verticals
TCS has higher dependence on the banking, financial services & insurance (BFSI) and the retail verticals than its peers in the industry, and its growth in these segments will be a key watch out for. BFSI contributes the highest about 31 per cent of the company’s total revenues, while retail accounts for about 14 per cent to the total revenue.
Management Commentary on Outlook
BNP Paribas said the commentary on the US and European markets will be key thing to watch out for.
Deal Pipeline
BNP Paribas expects a strong deal pipeline in the quarterly announcements. “We expect dollar revenue growth of 1.7 per cent q-q (3.2 per cent quarter-on-quarter in CC) on broad-based growth and a strong deal pipeline.”
On the entire IT sector, ICICI Securities said the demand environment is expected to be strong due to continued deal momentum led by sectors like BFSI, insurance, etc, but we need to be watchful on how macro as well as geopolitical risks play out, especially in H2FY23, which is expected to set tone for FY24 numbers.
TCS had registered a 7.35 per cent year-on-year rise in net profit to Rs 9,926 crore during the March 2022 quarter. The net profit was Rs 9,246 crore in the corresponding period of the previous financial year. Revenue saw a 15.75 per cent year-on-year increase to 50,591 crore during the fourth quarter of FY22, against Rs 43,705 crore in the year-ago period.
For TCS Investors:
“We expect investor to focus on 1) Whether there is any change in nature of demand, for example more cost focus, due to weak macro environment, 2) Presence of large and mega in deal pipeline, 3) Hiring, attrition and onsite wage inflation trends and its impact on margins ahead,” Prabhudas Lilladher said.
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