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TCS Q2 Result Preview | Experts predict 5% growth in topline on Q1-like deals

TCS Q2 Result Preview | The growth in TCS' revenue is expected to be driven by conversion of earlier strong orders, recovery in Indian markets after fall in June quarter, and strong spending on digital by corporates.

October 08, 2021 / 01:15 PM IST
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Tata Consultancy Services, the country's largest IT services company, is expected to report more than 5 percent sequential growth in revenue in constant currency terms and 4.7 percent increase in dollar revenue in Q2FY22, with deal wins likely to be similar to Q1FY22, powered by mid-sized deals, experts feel. Earnings will be announced on October 8.

The stock gained 16 percent since July and rallied 22 percent in the financial year FY22 so far.

Topline

The growth in revenue is expected to be driven by conversion of earlier strong orders, recovery in Indian markets after fall in June quarter, and strong spending on digital by corporates.

"We expect strong constant currency revenue growth rate of 5.3 percent powered by strong spends on digital and short cycle programmes, conversion of strong bookings of earlier quarter into revenues, and recovery in India after a sharp contraction of 14.1 percent in the June 2021 quarter," said Kotak Institutional Equities which expects growth of 4.7 percent in international markets and 15 percent in India business.

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Prabhudas Lilladher expects robust growth of 5.5 percent in revenue in constant currency terms, 4.7 percent QoQ growth in dollar revenue driven by ramp-up of strong order book of previous quarters, rebound in India business after a sharp decline in Q1FY22, gains in market share, and aggressive client spends in digital smaller-duration deals.

Deal Wins

Most experts feel the deal wins in the quarter ended September 2021 are expected to be largely similar to Q1 levels.

"We expect $8 billion of total contract value (TCV) powered by mid-sized deals. We do not expect any skew in TCV from mega-deals. TCV of deals will decline on YoY comparison even as previous year number was skewed by Phoenix mega-deal of $2.5 billion," said Kotak.

TCS had continued to have strong deal momentum with TCV of $8.1 billion in Q1FY22, up 17.3 percent YoY.

Operating Performance

The margin is likely to expand 50-70 bps sequentially due to revenue growth and normalisation of wage hikes. TCS rolled out wage hike in Q1FY22 starting April 1, 2021.

"We expect the margin to increase slightly by 50bps QoQ as headwinds of higher wages, higher retention and higher hiring costs to backfill attrition will be offset by revenue growth leverage and pyramid optimisation," said Prabhudas Lilladher.

According to Emkay Research, EBIT margin is likely to expand by 70bps QoQ due to normalisation of salary hikes and revenue growth led operating leverage.

Key things to watch

Demand trends in key verticals like BFSI, Retail, Manufacturing and Communications; large deal pipeline and reasons for lack of mega deal; pricing environment; margin outlook; December 2021 quarter outlook - likely seasonality; supply-side challenges and attrition; recovery in India business after contraction in June 2021 quarter; durability of growth and magnitude of opportunity from the aggressive cloud shift by clients are key things to watch out for, said brokerages.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Oct 8, 2021 08:33 am

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