Tata Consultancy Services scales peak ahead of Q2 earnings

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TCS shares closed at Rs 2,214 or 4.27% higher on the BSE on Monday. TCS shares closed at Rs 2,214 or 4.27% higher on the BSE on Monday.
SummaryIT major touched its life-time high on the back of positive expectations.

IT stocks are on a roll. On Monday, IT major Tata Consultancy Services (TCS) touched its life-time high on the back of positive expectations from the company’s Q2 earnings, which will be announced on Tuesday.

As per consensus Bloomberg estimates, the largest IT company by market capitalisation is set to report sequential sales growth of 15.18% to Rs 20,718 crore and net profit growth of 18.8% to Rs 4,508 crore. TCS shares closed at Rs 2,214 or 4.27% higher on the BSE.

TCS shares on Oct 14, 2013

Experts expect TCS' earnings to outperform its peers. “TCS should have the highest revenue growth and

margin improvement in large caps,” said Morgan Stanley analysts Vipin Khare and Gaurave Rateria in a recent note.

The counter has gained about 76% in the current calendar year and 27% in the quarter ended September. In the last quarter, the IT major reported a 15.5% y-o-y rise in its net profit at R3,831 crore.

Brokerages feel that TCS’ dollar revenues may see an impact due to cross-currency headwinds. “We expect organic constant currency revenue growth of 4.9% q-o-q. Alti acquisition will add another 1.3% to revenues. Cross-currency headwinds will impact dollar revenues by 110 bps. Operating margin will likely expand to 250 bps, flowing entirely from rupee depreciation,” Kotak Institutional Equities said in a note. The brokerage holds ‘add’ rating on the stock. According to experts, TCS’ operating margins are likely to expand by 3% in Q2. “We expect Ebit margin expansion of approximately 300 bps, driven by currency. Margins in constant currency terms should be maintained at 27%,” ICICI Securities said.

The BSE IT index was the top gainer on Monday, gaining 2.32%. Other IT stocks like Wipro (2.58%), Infosys (1.52%) and HCL Technologies (0.44%), also gained. On Friday, Infosys reported a 1.6% y-o-y rise in its consolidated net profit at R2,407 crore and a 31.5% rise in its consolidated revenue at R12,965 crore.

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