TCS Q2 results preview: Profit may rise 15% QoQ; all eyes on buyback


NEW DELHI: IT major TCS is likely to report a 8-15 per cent sequential rise in September quarter profit on Wednesday. Analysts expect the company to log a 2-3 per cent growth in revenues in constant currency (CC) terms and a 120-130 basis points improvement in Ebit margins, both sequentially.

For TCS investors, the management commentary on deal pipeline and IT spends, a proposal for share buyback, trends across verticals and changes in the delivery model would be key monitorables, said analysts, who noted that easing of lockdowns in September quarter across countries resulted in rampup of projects, easing supply-side pressure and building traction in digital technologies.

Phillip Capital expects almost flat year-on-year profit growth at Rs 8,036 crore, but sees a 14.7 per cent sequential rise in profit over June quarter’s Rs 7,008 crore. Revenues in rupee terms are seen rising 2.1 per cent sequentially (up 0.4 per YoY) to Rs 39,133 crore .

“We expect dollar revenue growth of 4 per cent on deal rampups with positive cross-currency impact of 140 basis points. Constant current revenue growth is seen at 2.6 per cent. Margins are expected to increase by 130 basis points sequentially on positive growth, higher utilisation and better onsite-offshore mix,” it said.

HDFC Institutional Equities pegs TCS’ sequential profit at Rs 7,777 crore, up 11 per cent sequentially, but down 3.3 per cent on a YoY basis. It sees dollar revenues at $5,232 million, up 3.4 per cent sequentially (down 5.2 per cent YoY). Ebit margin is seen at 24.7 per cent, up 110 basis points QoQ and 70 basis points YoY.

ICICI Securities expects TCS to register a 2.6 per cent sequential growth in constant currency revenues, led by improved demand from BFSI, healthcare, telecom and media verticals.

Data showed TCS derived just over 31 per cent of its revenues from the BFSI vertical, 14 per cent from retail, 9.1 per cent from hi-tech, 9.7 per cent from manufacturing, 9.6 per cent from healthcare and 7.1 per cent from communication and media verticals in June quarter.

“Cross-currency tailwind would lead to revenue growth of 3.8 per cent sequentially in dollar terms. In rupee terms, revenue is expected to increase 1.9 er cent sequentially. EBIT margins are expected to improve by 129 bps, led by cost rationalisation, cross-currency tailwind and an increase in utilisation,” said ICICI Securities, which sees TCS pofit at Rs 7,586.50 crore (down 5.7 per cent YoY, but up 8.3 per cent QoQ).

Meanwhile, TCS board will consider a buyback of shares on Wednesday, alongside second quarter earnings. In 2018, the company went for a Rs 16,000 crore share buyback. If okayed, it would be the first technology company to go for a buyback of its shares in FY21. TCS had cash reserves of Rs 73,993 crore in March 2020.





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