What to expect from TCS' Q1FY16 results today

Tata Consultancy Services (TCS) kicks off the first quarter results season for 2015 – 16 (Q1FY16) with its results expected later in the day today.

The first quarter of a fiscal has traditionally been a strong quarter for Indian information technology (IT) companies driven by more liberal client spending after finalisation of full?year budgets in the previous quarter.

However, analysts expect companies to show mixed earnings trend in Q1 and believe this quarter is crucial for several players from volume/OPM trend perspective going forward.

Here is quick compilation of what research and brokerage houses expect from TCS’s Q1FY16 results today:

Bank of America-Merrill Lynch

We expect a 140-160 bps q-o-q decline in EBIT% for TCS and Infosys on the full quarter impact of annual wage increases and visa costs, partially offset by the 2% depreciation of rupee verus the US dollar.



UBS

UBS expects reported dollar revenue growth to be up 4.3% q-o-q. Constant-currency revenue growth is pegged at 4.4% q-o-q, implying cross currency impact of -10bps. Volumes up by 4.6% q-o-q; EBIT margins up 984 bps q-o-q, as Q4 FY15 included one-time employee bonus payment of $423 million; we expect management commentary to remain consistent with recent commentary on FY16 outlook

Kotak Institutional Equities

We expect revenue growth of 4% in US dollar terms. Cross-currency tailwind will be negligible. Revenue growth will be led by an uptick in banking and retail segments, while telecom will drag. Expects net sales at Rs 25,741.4 crore in June'15 quarter, up 16.4% y-o-y and 6.3% q-o-q; Profit after tax (PAT) is pegged at Rs 5264.2 crore, up 4.1% y-o-y and 36.4% q-o-q

Motilal Oswal

The strength of 1Q seasonality is usually more prominent at TCS, and we expect it to be no different in FY16. We expect TCS to lead growth, with 4.1% q-o-q uptick in revenues to $4,058 million. This assumes cross currency impact of ~30bps. We expect EBITDA margin to decline 100 bps q-o-q to 28.2%, on the back of wage hikes to all employees during the quarter.

ICICI Securities

Attrition will be a closely watched metric for TCS given the significant increase in the metric over the past year. Quarterly annualised attrition has increased from a low of 12.1% in Q4FY14 to 16.8% in Q4FY15 (highest since Q1FY12). Attrition typically tends to inch up in Q1, as employees leave after wage hike as well as leave for higher studies.

Emkay

We build in US$ revenue growth of 4.2% for TCS in Jun'15 quarter with negligible cross currency tailwinds. EBITDA margins estimated to decline by ~130 bps on account of wage hikes offset somewhat by currency depreciation. Key things to watch out for (1) outlook on business from key verticals like Financial Services and Retail and geographies like US and Europe and (2) TCS's commentary on client captive activity and positioning with regards to the Digital Demand.

Edelweiss Securities

USD revenue growth of 5% q-o-q, driven by growth in key verticals like BFSI, manufacturing retail, etc. Wage hike and visa costs to dent margins but partially offset by favourable currency. We have built 210bps sequential dip (adjusting for the special bonus given last quarter) in EBITDA margin. We have not built in any forex gain for this quarter. Commentary on demand environment, discretionary spending, investments in digital technologies, measures to tackle attrition and margin levers are key monitorables.

Systematix Institutional Equities

Revenue outperformance to continue with 4.4% q-o-q volume growth despite sustained challenges in the Energy and Insurance (Diligenta) verticals. Traction in Digital business, given sustained challenges in the traditional services and recovery in the retail/BFSI segment are the key monitorables.