TCS may post strong Q4 growth on deal wins

ET Intelligence Group: Tata Consultancy Services (TCS) is expected to report a better sequential growth in net profit for the March 2021 quarter compared with the previous quarter led by sustained traction in deal wins and inorganic growth. According to the average of the estimates by four brokerages and by ETIG, it will report a 7.3 per cent sequential jump in net profit at Rs 9,335.9 crore compared with a 3.2 per cent increase in the previous quarter excluding one-off claims. The country’s largest software exporter is slated to declare the quarterly financials on Monday evening.“Expect a strong sequential revenue growth led by Postbank Systems and Prudential deal wins,” said Motilal Oswal Financial Services in a report. The brokerage expects the company to further ramp up its hiring during the quarter.Revenue is expected to grow 4.3 per cent sequentially to $5,949 million for the quarter. In rupee terms, the revenue growth may slow down to 3.4 per cent at Rs 43,448.6 crore following a stronger rupee. During the quarter, the rupee on average appreciated by 1.2 per cent against the dollar. A stronger rupee reduces the realisations for exporters.“Being the market leader, TCS will be a key beneficiary of core transformation, accelerated cloud and digital adoption. Moreover, persistent market share loss of key players such as Capgemini and Cognizant would directly benefit TCS,” noted Edelweiss Securities in a preview report.While the company’s top line performance is expected to be robust, it may not result in a higher jump in profitability. “EBIT margin is expected to remain flat sequentially as benefits from sustained revenue growth momentum and operating efficiencies are negated by integration of low margin deals and acquisitions and a stronger rupee,” said Emkay Global Financial Services in a preview report. 82021114Some analysts expect a moderate margin improvement of 60-70 basis points from the December quarter margin of 26.6 per cent. This is due to the absence of salary increase in the March quarter since the company had implemented it in the previous quarter.The management commentary will be crucial to understand the demand outlook for FY22 in terms of vertical-wise trend and IT budget scope for clients. “Key things to watch out for include demand trend in key verticals such as banking and finance, retail, manufacturing and communications, deal closure momentum, and competitive intensity,” mentioned Emkay in the report.The stock has gained 6.5 per cent since January 8 when it had declared the third-quarter numbers. This compared with a 7.2 per cent gain in the ET Infotech index and 1.7 per cent return of the S&P BSE Sensex. Given the expectations of sustained business momentum, the stock is expected to stay on investors’ radar.

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