Markets

TCS Q3 earnings: No surprise likely, currency math to dent dollar revenue

NEW DELHI: IT heavyweight Tata Consultancy Services will release its third quarter earnings on Thursday. Brokerages expect the October-December quarter numbers for TCS to come out steady.

Centrum Broking expects TCS revenues to grow 1.8 per cent QoQ in constant currency (CC) terms and USD revenues to grow 1 per cent as cross-currency headwind is likely to cut it by 80 bps.

“Ebitda margin may be at 28.5 per cent for Q3FY19, which represents a 60 bps improvement QoQ on a sequential basis. We expect EBIT margin for Q3 to come in at 27.2 per cent, up 70bps QoQ,” the brokerage said.

In September quarter, the IT bellwethers earnings were mostly in line with market expectations, underpinned by increased business in banking and retail.

Sharekhan by BNP Paribas expects TCS to deliver a sequential CC revenue growth of 1.9 per cent (adjusting the reorganisation of India business) for December quarter.

“Cross-currency headwinds likely to be 70 bps and revenue in US dollar is expected to grow 1.2 per cent QoQ and 10.2 per cent YoY,” the brokerage said.

It expects Ebitda margin to improve nearly 44 bps QoQ, led by operational efficiencies and marginal benefits from rupees depreciation, while net profit is likely to grow 3.9 per cent QoQ and 25.7 per cent YoY.

Nirmal Bang Equities has a similar view on TCS.

The brokerage has pegged QoQ CC growth for the company at 1.8 per cent, with a nearly 70 bps cross-currency headwind, which will result in dollar revenue growth lagging at 1 per cent.

EBIT margin may be at 27.2 per cent, compared with 26.5 per cent in second quarter, while the QoQ PAT may grow 8.5 per cent, largely led by rupee depreciation and large deal rampup, the brokerage said.

TCS reported double-digit YoY growth in CC terms after a gap of two years and whether this double-digit growth momentum is maintained in December quarter or not will be a key thing to watch out for, Nirmal Bang Securities says.

In September quarter, EBIT margin was in the aspirational 26 per cent-28 per cent band. Whether that continues in this quarter or not also is to be seen.

The IT sector, as a whole, had several headwinds in the third quarter. While December quarter is usually a weak one for Indian IT companies, owing to furloughs and a higher number of holidays in the US, the slump in global currencies against the US dollar is likely to keep the CC revenue growth capped for most IT players.

However, brokerages still have faith on the sector.

“We continue to maintain our positive stance on the IT sector and expect sustenance of earnings growth momentum in FY2019/FY2020, given pick-up in deal flows with increasing TCVs, continuous shift of large clients budget towards digital and rupee tailwind,” Sharekhan said.

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