Tata Consultancy Services (TCS) will kickstart the September quarter earnings of the fiscal year 2020-21 (Q2FY21) for the information technology (IT) companies as the firm is slated to announce its numbers on Wednesday, October 7. That apart, the IT major will also consider share buyback on the same day. On Monday, TCS' market capitalisation surged past the Rs 10 trillion mark for the first time and it became the second Indian firm after Reliance Industries (RIL) to achieve this milestone. The stock of the company hit a fresh record high of Rs 2,727 on the BSE in the intra-day trade. READ MORE
According to analysts, the IT sector witnessed a good pick-up in demand for digital solutions resulting in improvement in the growth outlook for most of the companies within the sector in Q2FY21. "This has reiterated sector’s ability to deal with headwinds which coupled with strong free cash flow (FCF) profile/payouts and corporate governance has resulted in re-rating of the sector," note analysts at IDBI Capital.
Here's a look at what leading brokerages expect from TCS' Q2 numbers
The global brokerage firm sees TCS' revenue in US dollar terms at $5,236 million, up 3.5 per cent quarter-on-quarter (QoQ) but down 5.1 per cent on a year-on-year (YoY) basis. In rupee terms, the company is expected to post a 2.1 per cent QoQ rise in revenue at Rs 39,113.4 crore. Earnings before interest and tax (EBIT) is seen at Rs 9,387.2 crore, up 3.7 per cent QoQ and 0.3 per cent YoY while the EBIT margin is estimated to rise 40 bps QoQ to 24 per cent. On YoY basis, the EBIT margin remains unchanged. Net profit or profit after tax (PAT) is expected to come in at Rs 7,517.4 crore, up 7.3 per cent QoQ but down 6.5 per cent on YoY basis. The brokerage notes that the multiple company-specific headwinds, such as US banking weakness are behind now and it expects some changes in the go-to-market strategy to regain the deal wins momentum relative to the competition. Commentary on the pace of global recovery and commentary on US elections impact are the key monitorables.
TCS is expected to register 2.6 per cent QoQ growth in constant currency led by improved demand from banking, financial services and insurance (BFSI), healthcare and telecom and media verticals, project ramp-up, low base, and easing of supply-side pressure. Further, cross-currency tailwind would lead to revenue growth of 3.8 per cent QoQ in US dollar terms at $5,251.2 million. In rupee terms, revenue is expected to increase by 1.9 per cent QoQ to Rs 39,069.2 crore. EBIT margins are expected to improve 129 bps QoQ to 24.9 per cent led by cost rationalisation, cross-currency tailwind, and increase in utilisation. PAT is expected to rise 8.3 per cent QoQ to Rs 7,586.5 crore while on a YoY basis, the numbers are expected to fall 5.7 per cent.
The brokerage forecasts revenue growth of 3 per cent QoQ in constant currency and cross-currency benefit of 180 basis points (bps). Revenue in US dollar terms is seen at $5,299 million, up 4.8 per cent QoQ but down 3.9 per cent YoY. In rupee terms, revenue is expected to grow 2.9 per cent QoQ and 1.1 per cent YoY at Rs 39,414.3 crore. EBIT margin is estimated to see a substantial improvement of 185 bps QoQ at 25.5 per cent with the revival in revenue growth and TCS's world-class ability to manage cost. Net profit is expected to increase 17.2 per cent QoQ and 2.1 per cent YoY at Rs 8,213.5 crore.
Edelweiss Securities expects TCS to report US dollar revenue growth of 5 per cent QoQ and 3.2 per cent in constant currency. On YoY basis, it expects US dollar revenue to decline 3.7 per cent. "We also expect the company to post robust margin expansion of around 200bps enabled by strong volume growth and better cost control and efficient execution," the brokerage said in a result preview note. Key things to watch for investors will be the total contract value (TCV) for the quarter, deal momentum, tenure, and pricing and segment commentaries, particularly retail, travel, and product engineering services.