TCS Q4 earnings today: Five things to watch out for
2 min read . Updated: 11 Apr 2022, 09:17 AM IST
Premium- Analysts believe IT companies will continue to post strong growth numbers on account of digital and cloud transformation initiatives with enterprise clients
Bengaluru: India’s largest IT services company Tata Consultancy Services Ltd (TCS) will be the first among peers to announce its fourth quarter earnings on Monday. Analysts believe IT companies will continue to post strong growth numbers on account of digital and cloud transformation initiatives with enterprise clients. Tier I companies should deliver revenue growth in a narrow range of 2.8-5.1% sequentially in constant currency, according to Motilal Oswal. While TCS does not provide a formal revenue growth guidance, management commentary on business outlook will be closely monitored.
As per consensus estimates by Bloomberg, TCS is expected to post revenues of ₹50,249 crore and net profit of ₹10,077 crore for the March quarter.
Mint highlights five things to watch out for in TCS’s Q4 results that will be declared on after market hours on Monday.
Revenue growth
TCS is expected to register a 3% sequential growth in constant currency led by continued improvement in demand from banking, financial services and insurance (BFSI), healthcare, retail, acceleration in digital technologies, and ramp-up of deals, according to ICICI Securities. Further, the brokerage firm said cross-currency headwinds would lead to a revenue growth of 2.7% sequentially in dollar terms. In rupee terms, revenue is expected to increase 3.1% sequentially.
EBIT margin
Analysts expect margins to come under pressure and either remain flat or decline in Q4 due to supply-side headwinds. For TCS, EBIT margins are expected to decline 20 basis points quarter-on-quarter to 24.8% due to continued increases in employee costs amid high attrition, according to ICICI Securities. Brokerage firm Sharekhan believes EBIT margin is likely to remain flat sequentially. “We believe margin headwinds such as higher hiring expenses to backfill rising attrition, increasing discretionary expenses, and higher-than normal visa expenses will be offset by operating efficiencies and improvement in pyramid balancing. We also believe TCS has strong supply-side capabilities among its peers."
Deal momentum
Investors will closely monitor the deal pipeline and momentum for TCS. The IT major’s growth is expected to be driven by higher discretionary spending and digital transformation initiatives. “We expect deal TCVs (total contract value) to remain stable on a sequential basis at around $8 billion in Q4, led by mid-size deals. However, it would decline on y-o-y basis due to lack of any large deals," Sharekhan said in an earnings preview.
Corporate restructuring
There will be keen investor interest in TCS’s corporate restructuring planned for FY23. TCS is expected to unveil a new operational structure with four distinct business groups being created to drive its next phase of growth to touch the next milestone of $50 billion in revenue. This is not the first time TCS is restructuring its business framework. In 2008, the company created 23 smaller units of about $250 million each, a structure that helped boost substantial growth for the company.
Management commentary on outlook
According to Sharekhan, investors will watch out for the management’s commentary on the overall demand environment; the impact of recent geopolitical tension on technology spending of clients; reasons for the absence of large deal signings; and commentary on the progress of its product and platform portfolio. Besides, investors will also watch out for attrition rates and the demand from across verticals especially BFSI, manufacturing, communication, and retail.
