TCS Q1 earnings today: 5 things to watch out for

NEW DELHI: IT major Tata Consultancy Services ( TCS) will announce its financial results for the quarter ended June 30, 2017 on Thursday post market hours.

Usually, the first quarter of a financial year is expected to be a weak one for the IT industry given the wage revisions that may contribute to 70-120 basis points sequential contraction in margins for TCS. However, a rise in visa costs and appreciating rupee are also seen denting the IT firm’s Q1 numbers.

Shares of the company were trading 0.55 per cent up at Rs 2452.50. Brokerage house IDBI Capital Markets has ‘Hold’ rating on TCS with a target price of Rs 2,440.

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KR Choksey Research believe that Q1FY18 will be a relatively status-quo quarter for IT services companies with absence of any surprises. “We believe that depreciation of USD against GBP and EUR (3.2% respectively) will result in a cross-currency tailwind in the range of 90-140 bps in Q1 FY18,” the brokerage house said.

Here are five things you should watch out for in TCS Q1FY18 earnings:

1) Demand outlook especially for BFS, insurance and retail sector: TCS revenue growth in Q4FY17 stood 2 per cent QoQ in terms of constant currency, dragged lower by the verticals of retail and BFSI, together contributing to 53 per cent of total revenue. Motilal Oswal in a research report said, “With continued weakness in retail, and lower-than-anticipated pickup in BFS, we expect 2.4 per cent QoQ CC growth in 1QFY18.” One should also look for an outlook on revenue from TCS Japan and Diligenta.

2) Commentary on steps to mitigate the impact of adverse visa policy in the US: According to market experts, full-quarter impact of wage hikes and visa expenses is expected to be the major drag for profitability, apart from rupee appreciation against the dollar.

3) Any change in EBIT margin band amid rupee appreciation: Motilal Oswal estimates for EBIT margin for Q1 stood at 24.30 per cent (down 140 basis points on quarter on quarter basis), below the lower end of the guided range of 26-28 per cent.

4) Large deals: According to market experts, one should also watch factors like large deal win during the quarter and growth in big clients. Commentary on recent client interaction should also be watched.

5) Net profit growth: Motilal Oswal Securities expects profit to come in at Rs 6,200 crore, down 6.2 per cent QoQ. Kotak Securities noted that the growth during the quarter was weaker than usual and impacted by soft BFS (banking and financial services) in North America and industry wide challenges in the retail vertical.