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TCS trades muted ahead of earnings, check what analysts expect

Rupa Burman Roy     July 9, 2020

Share price of Tata Consultancy Services (TCS) were trading tad lower on Thursday, as the IT major plans to publish its April-June quarter (Q1) earnings today.

The share price of TCS fell 1.02% to an intraday low of Rs 2,195 against the earlier close of Rs 2,317. The stock opened at Rs 2,225 and touched an intraday high of Rs 2,244.65.

Ahead of its Q1 earnings, TCS stock price has gained 2.62% in one week, 6.62% in one month and 2.2% since the beginning of the year 2020.

Although, TCS share has fallen 2.73% in the last 2 days of straight fall. TCS share stands higher than 5, 20, 50, 100 and 200-day moving averages. As of today's close, the market capitalisation of Tata Consultancy Services (TCS) stood at Rs 8,29,483.40 crore.

"...A meeting of the Board of Directors of TCS Limited is scheduled to be held on Thursday, July 9, 2020, inter alia to approve and take on record the audited financial results of the company under Indian Accounting Standards (Ind AS) for the quarter ending June 30, 2020," TCS said in a regulatory filing.

"The interim dividend, if declared, shall be paid to the equity shareholders of the company whose names appear on the Register of Members of the company or in the records of the Depositories as beneficial owners of the shares as on Friday, July 17, 2020, which is the record date fixed for the purpose," the filing said.

The analysts expect a 5% quarter-on-quarter revenue fall for TCS in dollar terms with nearly 50 basis points (bps) cross-currency headwinds. The EBIT margin decline is expected to be limited to 80 bps QoQ on account of tight cost optimisation like a freeze on discretionary spending, reduced hiring, lower travel costs and subcontracting expenses and currency depreciation. UBS Research said it views Infosys, HCL Tech, TCS as better defensives in terms of Q1 earnings.

Sharekhan expects the profit to fall Rs 7,814 crore this quarter. Kotak Institutional Equities expects the profit to fall 3.9% YoY and 2.2% QoQ to Rs 7,817.5. The brokerage expects Net sales to rise 11% to Rs 2,302 crore YoY.

HDFC Securities said in its note that TCS is likely to report 2.5% (QoQ) revenue de-growth to Rs 38,965 crore and net profit may fall 5% (QoQ) to Rs 7654 crore in Q1FY21. It added that the IT company's EBIT margin could decline by 90bps (QoQ) to 24.2%.

The brokerage has revised the rating for TCS to 'Reduce', with a  'Target Price' at Rs 1,940 at the CMP(current market price) of Rs 2,200 per share.

Commentary on-demand recovery, tech budget normalisation and cost rationalisation initiatives will be key monitorable, HDFC Securities added in its note.

"All eyes will be on Q1FY21 earnings of TCS. Traders should prefer hedged trades instead of outrights, citing a possible uptick in the volatility ahead," said Ajit Mishra, VP - Research, Religare Broking.

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