TCS outperforms market ahead of March quarter results

Trends in client budget, vertical wise trends, growth in digital technologies, margin trajectory, deal pipeline and long term IT trend will be among the key things to watch in Q4 results of TCS

Shares of Tata Consultancy Services (TCS) traded 1.5 per cent lower at Rs 3,273 on the BSE on Monday, outperforming the market, ahead of its January-March 2021 (Q4FY21) results today. In comparison, the S&P BSE Sensex was down 3.55 per cent or 1,758 points at 47,833, at 1:25 PM. The stock hit an intra-day high of Rs 3,344 and a low of Rs 3,241 on the BSE.

In the past one month, shares of the information technology (IT) giant rose 7 per cent, as compared to 5.7 per cent slide in the benchmark index. However, in the last six months, it has underperformed the market by gaining 16 per cent, against 18 per cent surge in the Sensex.

As the IT services sector looks poised to continue with its trailblazing journey in the Q4FY21, analysts expect the Tata Group crown jewel TCS to maintain its leadership position in the space in terms of revenue growth and margin expansion.

TCS is expected to report revenue growth of 5.0 per cent quarter on quarter (QoQ) in dollar terms. In rupee terms, revenue is expected to increase 3.9 per cent QoQ (lower than dollar growth due to rupee appreciation). EBIT (earnings before interest and tax) margins are expected to improve 186 basis points (bps) to 28.5 per cent led by absence of wage hike and operational efficiencies. The profit after tax is expected to increase 19.6 per cent year on year (YoY) due to low base in Q4FY20 (as the quarter was impacted by Covid-19 shocks), ICICI Securities said.

Key things to watch in today's conference call are trends in client budget, vertical wise trends, growth in digital technologies, margin trajectory, talent management, offshoring trends, deal pipeline and long term IT trend, the brokerage firm said in a note.

Global brokerage Nomura, for instance, eyes 9.4 per cent YoY jump in revenue (in rupee terms) to Rs 43,701 crore from Rs 39,946 crore posted in the same quarter last year. Sequentially, it eyes a 4 per cent growth in revenue from Rs 42,015 crore in the preceding quarter of FY21. "Deal win momentum is likely to be tepid given lower deal announcements compared to prior quarters and will include a contribution from the $550 million of deal with Postbank Systems AG. We expect a 4.3 per cent QoQ constant currency (CC) and 5 per cent QoQ dollar revenue growth in Q4 at $5,986 million," Nomura said in an earnings preview note.