IT major Tata Consultancy Services (TCS) is slated to announce its financial results for the second quarter ended September 30, 2016 on Thursday. According to market experts, despite being a seasonally strong quarter, tier-1 IT company may deliver tepid constant currency growth on quarter-on-quarter basis for 2QFY17. This is owing to challenges in BFSI vertical and client specific issues weighing on growth. Average GBP has depreciated by 8.4 per cent QoQ vs USD and cross-currency movements would be a headwind for USD revenues by 40-80 basis points for the quarter.
For the quarter ended June 30, 2016, Tata Consultancy Services reported a consolidated net profit of Rs 6,497 crore, up 1.31 per cent, against Rs 6,413.12 crore in the sequential quarter ended March 31, 2016. Shares of Tata Consultancy Services were trading 1.14 per cent down at Rs 2353.05 in the early trade (at 9.31 am)
Below are 5 things to expect as TCS will announce its second quarter results on October 13.
1) According to Reliance Securities, the second quarter is likely to be the weakest ever 2Q for TCS, Infosys and Wipro in terms of sequential dollar revenue growth. Factors like SMAC (Social, Mobility, Analytics and Cloud), leading to revenue cannibalisation, challenging macro, high competitive intensity and pricing pressure will sustain and these factors to impact growth over the next few quarters as well. The brokerage house believes that TCS is likely to register dollar revenue growth of 1.5 per cent on quarter-on-quarter basis and revenue growth in terms of constant currency is likely to come in at 2.5 per cent on quarter-on-quarter basis. However, Centrum Broking expects 2.8 per cent quarter-on-quarter growth from TCS in constant currency and 2 per cent growth in dollar terms.
2) During the quarter, TCS cited growth concerns because of a sequential loss in momentum, led by weakness in BFSI discretionary spend in the US. Motilal Oswal believes, the IT major may post a net profit of Rs 6,178 crore for the quarter ended September 30, 2016. The decline is led by lower other income, which is impacted by forex losses. However, Edelweiss believes TCS may post 1.1 per cent quarter-on-quarter and 5.4 per cent year-on-year rise in core PAT figures.
3) Edelweiss expects EBITDA margins of TCS are expected to expand by 50 basis points on absence of visa cost and operational improvements. Commentary on impact of Brexit on the medium term, spends in BFSI space, investments in digital technologies and margin levers are among the other major factors to watch.
4) Cross-currency woes would act as a headwind by 80 basis points for the quarter. TCS derives 13 per cent of revenues from GBP as on 1QFY17 and steep fall in GBP for the quarter would lead to cross currency headwinds. This would be partially negated by appreciation of JPY and AUD. TCS has the highest exposure to BFSI vertical (40.4 per cent of total revenues) and challenges in BFSI sector could weigh on momentum.
5) Hiring trends would also be keenly watched as company has earlier guided of increasing per employee productivity through automation initiatives. Religare Institutional Research believes that EPS growth in rupee terms may fall by 0.7 per cent year-on-year for the quarter ended September 30, 2016.