TCS Q3: Up to 4% CC revenue growth, strong commentary likely

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TCS Q3: Up to 4% CC revenue growth, strong commentary likely


NEW DELHI: Shares of TCS have been on a roll, with the company recently breaching the Rs 11 lakh crore mark in market-cap on hopes of a strong ‘third wave’ of outsourcing in the quarters to come. Will TCS’ Q3 numbers this Friday meet the heightened Street expectations and take the stock past the Rs 12 lakh crore market-cap mark?

What is Street expecting?

Major deal wins, strong revenues and an upbeat outlook from the company management. TCS shares, which hit a 52-week high of Rs 3,112.75 on Tuesday, inching close to Rs 12 lakh crore-mark, are already partly reflecting these expectations.

What do analyst projections say?

Edelweiss expects TCS to report about 4.5-5 per cent growth in dollar revenue and 4 per cent expansion in constant currency (CC) growth — all this on a sequential basis.

This is because the company is seen as a key beneficiary of core transformation, higher cloud adoption and digital adoption. It is also seen as a direct beneficiary of the persistent market share loss of key players such as Capgemini and Cognizant.

Antique Stock Broking sees sequential constant currency growth of 3 per cent and dollar revenue growth at 3.3 per cent, with a cross-currency tailwind of 30 basis points.

“We expect the BFSI vertical to report decent growth led by strong momentum in retail banking and mortgage sub-verticals; life sciences and healthcare verticals should continue to witness strong growth. We expect margin contraction of 120 bps QoQ largely led by the negative impact of salary hike that took effect from October 1, 2020; which will be partially offset by operational efficiency,” it said.

Antique said the Ebit margin may fall 120 basis points to 25 per cent sequentially from 26.2 per cent in the September quarter. This is largely on account of salary hikes.

On YoY basis, Nirmal Bang projects TCS reporting 2.6 per cent growth in revenues at Rs 40,900 crore. Ebit is seen rising 5.1 per cent YoY to Rs 10,477 crore. Profit is seen at Rs 8630 crore, up 6.3 per cent. Margin is seen expanding to 25.6 per cent from 25 per cent YoY.

What should you watch out for?

Edelweiss said investors may watch out for total contract value (TCV) for the quarter, deal momentum, tenure and pricing. A commentary — particularly on retail, travel and product engineering services verticals — will be keenly watched, it said.

“We expect TCS to call out the current pandemic as a key catalyst for the third wave of outsourcing, triggering structural high-growth for the industry for a much longer period. Besides, we expect the company to provide an update on the implementation of its secured borderless workspaces (SBWS) and the attrition rate,” it said.





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