TCS Q4 preview: Covid-19 likely to hit most verticals; FY21 outlook key

Net sales (revenue), according to Centrum Broking, is expected to see 1.5 per cent sequential growth at Rs 40,436.9 crore.

Tata Consultancy Services (TCS) is scheduled to release its financial results for the March quarter of the fiscal year 2019-20 (Q4FY20) on Thursday. Analysts see some erosion in the company's revenue due to the nationwide lockdown that kickstarted in March. Further, owing to Covid-19 impact, which has led to a steep negative impact on the macroeconomy, they expect headwinds in most of its verticals.

On a sequential basis, Edelweiss Securities expects 0.7 per cent decline in TCS' revenue growth in constant currency (CC) terms. In dollar terms, the company is expected to post 0.6 per cent quarter-on-quarter (QoQ) decline in revenue at $5,554 million. On year-on-year (YoY) basis, the revenue is expected to rise 2.9 per cent. "We believe a strong dollar will offset some loss on margins brought by dip in utilisation levels," the brokerage said in an earnings preview note.

In rupee terms, the company is expected to post 1.6 per cent QoQ growth in revenue at Rs 40,477.1 crore against Rs 39,854 crore in the previous quarter, suggest estimates (on average basis) across brokerages. On a yearly basis though, this is projected to grow 6.5 per cent. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen at Rs 10,888.3 crore, up 0.2 per cent QoQ and 8.1 per cent YoY. EBITDA margin is seen at 26.9 per cent, as against 26.5 per cent in the year-ago period and 27.3 per cent in the previous quarter.

Net profit or profit after tax (PAT) for the quarter under review is expected to fall 0.3 per cent QoQ and 0.4 per cent YoY at Rs 8,095.4 crore.

"Cross-currency would be a headwind of 80 basis points (bps) for the quarter. Hence, we expect reported USD revenues to decline by 0.7 per cent QoQ," caution analysts at Centrum Broking. The brokerage expects TCS’ EBIT margin at 25.3 per cent, up 30 basis points (bps) QoQ with rupee depreciation acting as a tailwind for margins.

Net sales (revenue), according to them, is expected to see 1.5 per cent sequential growth at Rs 40,436.9 crore. On YoY basis, the numbers will grow 6.4 per cent. PAT is seen at Rs 8483.4 crore, up 4.5 per cent QoQ and 4.4 per cent YoY.

"We lower average rate (USD vs INR) estimates to 74/73 for FY21/FY22E owing to recent rupee depreciation (vs 71/71 earlier). This provides a tailwind to rupee revenues and margins. We downgrade our earnings per share (EPS) estimates by 7/9.7% for FY21/FY22E led by USD revenue downgrade. Our Target price is cut by 16% to Rs 1900/share led by EPS downgrade and P/E downgrade. We value TCS at 20x FY22E EPS (vs 21.5x FY22E EPS earlier). Retain Add," Centrum wrote in its earnings preview report.

Those at Motilal Oswal Financial Services suggest that order booking/order backlog will be the key monitorables in the result announcement. Further, outlook on the deal ramp up and outlook on FY21 growth/margins will also be in focus as the company announces its numbers on Thursday.