What to expect from TCS' quarterly results today

IT major Tata Consultancy Services (TCS) will report its earnings for the quarter ended June 2018 after market hours today. The firm is the first IT bellwether to announce its earnings in the first quarter of this fiscal. A majority of brokerages expect the firm to report around Rs 7,000 crore  in Q1 net profit.

In Q4 of previous fiscal, TCS reported a 4.48 per cent year-on-year (YoY) rise in consolidated net profit at Rs 6,904 crore for the March quarter. Country's biggest software services exporter reported a revenue growth of 8.2 per cent (YoY). Its FY18 Q4 revenue came at Rs 32,075 crore. Here's a look at how brokerages expect the firm to perform in the June quarter.

Kotak Institutional Equities

TCS is likely to report Rs 34,182.8 crore in sales for the June quarter. Profit after tax is seen at Rs 6,952.5 crore

The firm's earnings per share is seen coming at Rs 18.2 per share. It stood at Rs 18 per share for the quarter ending March 2018.

The brokerage expects constant-currency (c/c) revenue growth of 3.7% and cross-currency headwind of 120 basis points. Growth will be led by seasonal strength and ramp-up of large deals won in 2HFY18. All verticals, barring banking, will report healthy growth.

Impact of wage revision will be 200 basis points, which will be partly offset by depreciation of rupee. Earnings before interest and tax (EBIT) margin will increase on year on year comparison aided by rupee depreciation.

The brokerage expects investor focus on:

• Demand outlook, especially in banking, financial services and insurance (BFSI) vertical
• Ramp-up timeframe of recently-won large deals
• EBIT margin outlook in light of ramp-up of recently won large deals
• Increase in digital deal sizes

Emkay  Global

The brokerage sees net sales coming at Rs 34,200 crore. Profit after tax is seen coming at Rs 6918.7 crore. Earnings per share seen at Rs 18.5 per share.

The brokerage expects  3.7%  qoq CC  revenue  growth and 100bps qoq cross -currency  headwinds, leading  to  a  2.7%  qoq  growth  in USD  terms. INR  depreciation  (400bps  qoq)  will  lead  to  a 6.6%  qoq  growth  in  reported  terms. Margin is expected  to decline  by 140 bps qoq on account of wage  hikes,  visa charges and new  deal  ramp -up  costs.  Profitability  impact  is after assuming 100bps forex tailwinds sequentially. Reported profit  is  expected  to remain  flattish largely  on  weaker  operating profit margins and  lower  other  income.

Key aspects to watch out  for: 

• Demand outlook ( especially in large USBFS clients )
• OPM levers going forward, if any
• Commentary on Digital

HDFC Securities

The brokerage sees net sales coming at Rs 33,925 crore and adjusted profit after tax of Rs 7,031 crore.

It further states revenue is estimated at $5,063 mn, 1.8/10.3% QoQ/YoY based on 3% QoQ CC and -120 bps cross currency impact.

INR revenue estimated at Rs 33925 crore, 5.8/14.7% QoQ/YoY. EBIT margin estimated to decline 40bps QoQ to 25% (target band of 26 to 28%) impacted by wage increase (-200 bps margin impact) offset by INR depreciation and efficiency gains. APAT estimated at Rs 7,031 crore, 1.5/18.2% QoQ/YoY.

Key aspects to watch out for: 

• Growth outlook for FY19E wrt. 1H seasonality
• Digital performance and large account metrics
• Core vertical (BFSI and Retail  and CPG) performance and outlook (commentary on large NorthAm BFS accounts)
• Margin outlook with increased onsite investments
• Commentary on deal wins and deal pipeline