India’s largest IT services company Tata Consultancy Services (TCS) will on Monday release its financial results for the March 2022 quarter, thus starting India Inc’s earnings season. The company does not provide revenue growth guidance, but investors will look at management commentary on the outlook. Here’re important parameters the investors need to see in the results:
EBIT Margin
TCS‘ EBIT margins are expected to decline 20 bps quarter-on-quarter to 24.8 per cent due to continued increase in employee costs amid high attrition, ICICI Securities said in a report.
Revenue growth
Analysts said TCS is expected to report higher sequential growth compared to Tier-1 IT companies like Coforge and LTI. HDFC Securities said, “Factored USD revenue/EPS CAGR at 12 per cent each over FY22-24E supported by scale and breadth of services including industry platforms, market-share gains from deal bookings in the core vertical (BFSI)/core geography (North America), superior execution and operational track record and superior balance sheet.”
Growth in key verticals
TCS has higher dependence on the banking, financial services & insurance (BFSI) and the retail verticals than its peers in the industry, and its growth in these segments will be a key watch out for. BFSI contributes the highest about 31 per cent of the company’s total revenues, while retail accounts for about 14 per cent to the total revenue.
YES Securities said, “The performance would be broad-based, with improving traction across BFSI, telecom, healthcare, manufacturing, and retail sectors will drive the revenue growth.”
Management commentary on outlook
YES Securities said it expects broadly stable margin with attrition almost peaking out. Management commentary on the outlook on growth environment would be key thing to watch out for.
Deal Pipeline
HDFC Securities said that among the key monitorables for TCS are deal pipeline/ bookings. It includes key deals such as Cemex, Western Power, and Fletcher.
Apart from these, YES Securities also said, “The performance in this quarter would be slightly impacted due to lower number of days in the quarter. Attrition has almost peaked for most IT companies and should stabilise and come down going ahead. EBIT margin performance is expected to be flattish (+/-20bps) QoQ for most companies.”
ICICI Securities in its report said, “The growth of Indian IT companies is expected to moderate in Q4FY22 as witnessed in Q4 quarters historically. Margins are expected to take a hit due to continued higher employee expenses. The demand environment continued to be strong led by continued deal momentum led by sectors like BFSI, insurance etc. There would be some cross currency headwinds during the quarter, which will dampen dollar revenues, to some extent, fourth quarter.
In the December 2021 quarter, Tata Consultancy Services had posted a 12 per cent jump in its net profit to Rs 9,769 crore, compared with Rs 8,701 crore recorded during the corresponding period of the previous financial year. Its revenue from operations also rose 16 per cent to Rs 48,885 crore in the third quarter of the current fiscal. It was Rs 42,015 crore a year ago.
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