Here's what to watch out for in TCS' Q4 earnings

Management commentary on FY17 budgets, jury decision in the US to be key for IT major

Tata Consultancy Services (TCS), India’s largest IT services provider’s fourth quarter numbers for the FY2016 will be one of the most awaited event today for two reasons. 

The company’s share price was trending at Rs 2,469.45 per share, down by 2.13% as the markets opened.

The first will be for the performance of the company, especially after its competitor Bengaluru-based Infosys has reported a stellar performance, but more importantly, the Street and analysts will want to hear the management on the $940 million notice fine on the company by a Federal Jury in the US.

Based on the comment made by management in the last few months, this quarter could well be bottoming out quarter in terms of performance. The company has been missing expectations for the last six quarters, owing to softness in telecom, oil and gas and its insurance platform Diligenta. One also has to remember that Q3 and Q4 are traditionally weak quarter for the industry and for TCS in particular due to holidays and furloughs in certain sectors. 

Revenue: The Street is expecting TCS to report US dollar revenue growth in the range of 1.2-2.2% on a quarter-on-quarter basis. Unlike Infosys, TCS does not provide for revenue guidance and hence the management’s commentary will be important to gauge demand trends for FY17. For the full year, revenue is seen growing by 7% much lower than Infosys 9.1%. Profit after tax is expected to be up 2.4% q-o-q.

Digital revenue: TCS is among the top IT players to report 13% of its revenue coming from digital. In the last quarter, the company shared its digital strategy with analysts. 

More details and the growth for FY17 in this segment will be watched for. The company has stated in the past that digital is growing at a much faster rate.

Commentary of troubled areas: TCS has been behind the peers in terms of growth due to softness in its insurance platform Diligenta, verticals like telecom and oil & gas and regions like Japan, India and Latin America.

N Chandrasekaran, CEO and MD TCS, during Nasscom Leadership Forum had assured the market that they are seeing no softness in the banking services segment. This was also to allay fear as Nasdaq listed Cognizant had cautioned the street that they see softness in the BFSI space.

Management commentary will also be sought on performance of the company in Japan and India. TCS has maintained that India is a volatile market. On Japan the street would expect to know more on its consolidation of its JV with Mitsubishi Corporation.

Large deal wins: Other than large deal wins during the quarter, management commentary will be key on the demand outlook for large deals and discretionary spending.