TCS to sustain revenue momentum in Q3 following key deal wins

TCS to sustain revenue momentum in Q3 following key deal wins

ET Intelligence Group: Tata Consultancy Services (TCS) is expected to sustain the revenue momentum in the December 2020 quarter following pick up in the business activities. Net profit without considering one-off legal expenses in the previous quarter may show weakness in the third quarter given the salary increase and unfavourable currency movements. The management commentary on deal momentum, pricing and major verticals will be crucial. The country’s largest software exporter is slated to declare results on Friday evening.

Revenue is likely to grow by 3.1% sequentially to $ 5,591.5 million according to the average of the estimates of ETIG and six brokerages. In the rupee terms, growth may be marginally lower at 2.8% due to unfavourable cross currency effect. The rupee on average appreciated by nearly 1% sequentially against the dollar thereby squeezing the export realisations. Net profit may drop by 1% to Rs 8,357.3 crore after excluding Rs 1,218 crore of legal claim in the previous quarter.

In a sector preview report, brokerage Motilal Oswal Financial Services said that it expected a strong revenue growth led by ramp-up of large deals won in the prior quarter. It also expected the company to report robust TCV (total contract value) for the December quarter following deal wins of Deutsche and Prudential.

TCS is expected to report pressure on profitability for the third quarter after reporting expansion in the previous quarter excluding legal claims. “We forecast EBIT margin to decline by around 105bps (basis points) largely impacted by salary increase,” mentioned IDBI Capital in a preview report.

ET Bureau

The average of the estimates shows that the top five IT companies are expected to report 3.2% sequential growth in the aggregate dollar denominated revenue. The sample’s rupee revenue growth is expected to be slower at 2.6%. Net profit is expected to grow by 1,2% sequentially. The sample includes TCS, Infosys, HCL Technologies, Wipro, and Tech Mahindra.

Given a sustained business momentum, investors’ attention is expected to shift to growth from recovery. “As investor focus shifts towards post COVID growth, conversations around client IT spends, business confidence in Europe and margins in captive takeover deals will likely take the center stage,” said ICICI Securities in a report.

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