Key things to watch out for in TCS Q3 earnings

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Key things to watch out for in TCS Q3 earnings

Tata Consultancy Services reports third quarter results on Tuesday, and the results will be keenly eyed by the street, especially after technology bellwether Infosys' guidance shocker last week.

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ALSO READ News and Notices about TCS See interviews with TCS Management See what other Experts & Brokerages are saying about TCS See previous Results of TCS TCS BSE | NSE 31/05/12 Are Mutual Funds betting on TCS? Other Stocks in this news Infosys |

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Tata Consultancy Services reports third quarter results on Tuesday, and the results will be keenly eyed by the street, especially after technology bellwether Infosys ' guidance shocker last week.

Some analysts say that TCS, which is India's largest software services exporter, is in a far better position and will outperform Infosys.

"We believe TCS management continues to have a reasonable revenue visibility in the medium term, despite uncertainty in the macro environment. With over 80% of its clients having finalized budgets, TCS doesn't expect any volume or pricing shock in fiscal 2013 so far," said Morgan Stanley analysts Vipin Khare and Gaurav Rateria.

But the recent depreciation in rupee could pinch TCS' earnings in the third quarter. Infosys has long followed a short-term-hedging policy, but not TCS and that could hurt.

Religare Institutional Research analysts Rumit Dugar and Manoj Singla expect TCS to report a muted US dollar revenue growth of 2.4% in Oct-Dec as it would see cross currency impact of 200-220bps. Forex losses on account of hedges could also limit bottom-line gains they analysts said, although margins will expand due to the rupee decline.   

Kotak Institutional Equities expects TCS to report Rs 200 crore forex loss during the quarter.

Nitin Padmanabhan and Ashish Chopra of Motilal Oswal Securities expect TCS' US dollar revenue in the third quarter will rise 2.6% sequentially to USD 2.6 billion, while in rupee terms revenue will rise 12.5% to Rs 13,090 crore. The two analysts forecast TCS' Oct-Dec net profit growth of 14% quarter-on-quarter to Rs 2,780 crore.

TCS' incremental revenues have been on a declining trend for the last few quarters and that could be a key thing to watch, the Motilal Oswal analysts say.

Citigroup analysts Surendra Goyal and Rishi Iyer say that TCS has higher exposure to banking and financial services (BFSI) sector, and so risks are higher given current macro-economic concerns led by the euro zone debt crisis.

These are the other things to watch out for in TCS press release/management commentary:

* Outlook on calendar 2012 IT spends by clients, specifically within financial services clients
* Pricing and volume trends
* Hiring outlook

TCS shares closed up 2.2% at Rs 1,109.40 on NSE on Monday. The stock has risen 7% since September 30, outperforming the broader Nifty index, which has slipped 1.4% during the same period.

While Kotak Securities has a "buy" and IDFC rates TCS "outperform", Citi and Motilal Oswal have a "neutral" rating. Morgan Stanley rates TCS at "equal weight."   

Nachiket Kelkar
nachiket.kelkar@network18online.com