TCS Q4FY18 result preview: Here's what brokerages expect

Tata Consultancy Services (TCS) is likely to announce its results for the March quarter and full financial year 2017-18 (FY18) on April 19. Stay tuned for latest updates on TCS Q4FY18 results.

Infosys surprised the Street by lowering its EBIT guidance for FY19 while announcing its March quarter (Q4FY18) numbers on Friday. Will TCS follow suit? The Tata Group company is likely to announce its results for the March quarter and the full financial year 2017-18 (FY18) on April 19.

On a year-to-date basis, the stock has rallied around 17% and has outperformed the Nifty IT index that gained over 12% during this period. By comparison, the Nifty50 index is down 0.1% YTD, ACE Equity data showed.

According to analysts, commentary on spends by BFSI and retail clients, level of outsourcing in Europe will be some of the key monitorables.

Here is a quick compilation of what leading brokerages and research houses expect from TCS:

NOMURA

Any sign of improvement in the BFSI outlook where the company expects clarity after couple of quarters and continuation of strength in Retail (where it expects double-digit growth in FY19F). Also traction in other verticals, which have been growing at double-digit rates, is key to watch. We see tempering of the margin outlook with possible downplaying of the 26-28% EBIT margin aspiration in light of the steady INR and possible dilution due to large deals. We see risks to consensus estimates on both growth and margins here.

EDELWEISS

We estimate TCS to post revenue growth of 2.3% in USD terms and 1.1% in constant currency terms QoQ. Revenue growth to be impacted due to softness in key BFSI clients, while rest of business will continue good momentum. EBITDA margins expected to rise 30 bps QoQ on account of operational efficiencies. Commentary on spends by BFSI and retail clients, level of outsourcing in Europe are key monitorables.

EMKAY GLOBAL

We have built in a 1.5% QoQ constant currency revenue growth with 95 bps QoQ cross currency tailwinds. We expect that the muted demand from North America BFSI to add to seasonal weakness. Reported growth to get affected by moderate INR appreciation of about 29bps in the quarter.

Expect gains of 20bps in operating margins on sequential basis on better pricing realizations, Forex movement and operational efficiencies. Key things to watch out for (1) Demand outlook especially in large BFSI clients (2) OPM sustenance in narrow band despite declining growth and cost pressures and (3) Commentary on Digital Business.

PRABHUDAS LILLADHER

We expect TCS to report full year FY18E dollar revenue growth of 8.3%, respectively. However, constant currency revenue growth for TCS would be 5.6% for FY18E, respectively.

Hence, FY18E constant currency growth is lesser than FY17 (TCS delivered 8.3% constant currency growth in FY17). We expect bounce back in revenue momentum in FY19E. Increasing deal sizes in Digital and scope for uptick in BFSI/Retail should witness growth recovery in FY19E.

HDFC SECURITIES

TCS’ growth trajectory is expected to accelerate based on expansion of digital business (22% of rev), recovery in key vertical ahead (Retail & CPG), Large deal wins providing growth visibility, and stability in operational performance (despite investments in large deals).

The IT major is expected to grow at 10.6% on a year-on-year basis. PAT for Q4 is expected to be Rs 68.29 bn while the revenue at Rs 316.65 billion.

IDBI CAPITAL

We forecast CC revenue growth of 2% QoQ and a cross-currency tailwind of 140 bps. Forecast EBIT margin to improve by 40 bps QoQ driven by operational efficiencies.

Would watch for: 1) Demand outlook and commentary CY18 budgets based on client interactions, especially for BFS, 2) Ramp-up of large-deals; 3) Strategy to mitigate the impact of US tax code, 4) Outlook on EBIT margin, 5) Large deal wins and growth in large clients; and 6) Growth in Digital services and progress on increase in deal sizes.