TCS’ Growth Unlikely To Pick Up In Third Quarter
Currency volatility to adversely impact TCS’ revenue growth in the third quarter.
India’s largest information technology company Tata Consultancy Services Ltd. (TCS) is expected to report lacklustre earnings for the third quarter of the current financial year.
Bloomberg consensus estimates suggest 1 percent growth in total income to Rs 29,585 crore and a decline of 1.8 percent in net profit to Rs 6,485 crore compared to the second quarter of this financial year. TCS is expected to maintain earnings before interest and taxes (EBIT) margins at 25.9 percent compared to 26 percent last quarter.
Behind The Weakness
Currency volatility in the euro, British pound and the Japanese yen in the third quarter is likely to adversely impact revenue by 1-1.5 percent, according to analysts who track the company. This is likely to be partially mitigated by spillovers of certain contracts from the second quarter into this one. EBIT margins are expected to be nearly in line with the lower end of the guided range of 26-28 percent with some help from improving execution of operations. Growth in the banking, financial services and insurance (BFSI) vertical, which contributes over 40 percent to TCS’ revenue, is likely to remain muted.
What To Watch
- Outlook on client budgets in 2017
- Changes in client responses in the BFSI segment, if any
- Comments on potential changes in H-1B visa norms and plans to counter adverse impact on workforce, margins
- Automation of processes and related impact on operations
- Plans with large cash reserves of $5.5 billion
- Company’s positioning in the changing digital market
(Expectations have been compiled from reports by Kotak Institutional Equities, IDBI Capital, Edelweiss Securities, Phillip Capital, and Religare Institutional Research.)