Home >Companies >Company Results >TCS Q1 earnings today: 5 things to watch out for

BENGALURU: India’s largest IT services company, Tata Consultancy Services (TCS) Ltd will be the first to announce its fourth quarter earnings on Thursday. Analysts believe IT companies have not seen any impact of the second covid wave on their topline. Further, acceleration in digital technologies and improved deal pipeline are further expected to drive IT companies’ revenues in a seasonally strong June quarter. While TCS does not provide a formal revenue growth guidance, management commentary on business outlook will be closely monitored.

As per consensus Bloomberg estimates, TCS is expected to post revenues of 45,748.6 crore and net profit of 9,382.5 crore for the June quarter.

Mint highlights five things to watch out for in TCS’s Q1 results that will be declared on 8 June, after market hours.

Revenue growth

ICICI Securities expects TCS to register 4.0% sequential revenue growth in constant currency led by anticipated improvement in demand from banking, financial services & insurance (BFSI), healthcare and retail, acceleration in digital technologies and ramp up of deals. “Cross currency tailwind would lead to revenue growth of 4.2% quarter-on-quarter (q-o-q) in dollar terms. In rupee terms, revenue is expected to increase 5.3% q-o-q."

EBIT margin

EBIT margins are expected to decline 102 basis points q-o-q to 25.8% mainly led by wage hike and increase in travel cost, according to a note from ICICI Securities. Margin impact from large captive deals would also be in focus, as per Motilal Oswal.

Large deals momentum

Investors will monitor how quickly TCS is able to ramp up large deals in the coming quarters. The IT services major reported its highest quarterly deal closure of $9.2 billion for Q4. For FY21, the order book stood at $31.6 billion, up 17% year-on-year. Large deals trends such as closure timelines and profitability metrics will also be monitored.

Growth in key verticals

Growth in banking, financial services & insurance (BFSI) and retail verticals in which TCS has a relatively higher dependence than peers, will be a key monitorable. BFSI is the largest vertical for TCS and contributes about 31% to the company’s total revenues. Retail is the second most important vertical contributing about 14% to the total revenues. TCS is eyeing strong growth in both these verticals which are undergoing digital transformation at different levels.

Management commentary on outlook

While TCS does not give a formal revenue growth guidance, management commentary on outlook will be keenly watched. According to IIFL Securities, investors will closely monitor management’s comments on the demand environment and pace of deal wins; outlook on the supply side and attrition trends in the industry, along with TCS’s own hiring plans; and resultant impact on TCS’ profitability, even as it continues to focus on organic talent development.

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