TCS Q4 profit seen down 2%, dollar revenue may rise 2%; 5 factors to watch out

After Infosys' Q4 earnings and FY18 guidance miss, now all eyes are on country's largest IT services exporter Tata Consultancy Services that will announce earnings on April 18.

According to average of estimates of analysts polled by CNBC-TV18, TCS is expected to report a 2 percent degrowth sequentially in profit at Rs 6,638 crore while revenue may increase 0.4 percent to Rs 29,864 crore in the quarter ended March 2017.

Revenue in dollar terms is likely to rise 2.1 percent quarter-on-quarter to USD 4479.5 million in Q4, supported by cross currency and continued recovery in BFSI & retail segments.

The Tata Group firm has the highest exposure to BFSI (banking, financial services and insurance) at over 40 percent.

EBIT (earnings before interest and tax) is expected to increase 0.45 percent to Rs 7,768 crore but margin is likely to be flat at 26 percent compared with previous quarter.

Here are five factors that will be closely watched:-

EBIT margin

First factor to closely watch is whether the company will moderate its EBIT margin range from current 26-28 percent or not, especially due to rupee appreciation and wage hikes if any. Infosys already cut its margin by 100 basis points.

Nomura expects TCS to forecast margin at around 25-27 percent. In Q4, the rupee has appreciated by over 3 percent from the last quarter close and the full impact is likely to reflect in FY18 even as Q4 might see around 2 percent impact.

BFSI, retail segments

TCS could be a key beneficiary of a recovery in digital discretionary spending by US banks and retail firms, analysts say.

TCS is the most sensitive to BFSI demand given its 40.4 percent exposure to the segment while retail exposure is at 13.5 percent.

The company in its concall after Q3 earnings said there was a sense of buoyancy in customer sentiment, particularly in the BFSI sector.

Any near-term impact on decision-making due to immigration-related issues will be watched.

The contribution from digital business to revenue increased to 16.8 percent in Q3FY17 against 16.1 percent in previous quarter. Digital growth was at 6.6 percent QoQ and 30.2 percent YoY in Q3FY17.

Buyback

The company has announced a Rs 16,000 crore worth of share buyback at a price up to Rs 2,850 per share. It will buy back 5.6 crore shares, which is 2.8 percent of total paid up equity.

Management changes

Rajesh Gopinathan, the current CFO, elevated as TCS CEO with effect from February 21 after Natarajan Chandrasekaran became chairman of Tata Sons.

New position of chief operating officer will be created that will be occupied by NG Subramaniam, who is currently a head of financial solutions.

Visa issue

TCS during the quarter said it has been among the top net job creators in IT Services in the United States for the past couple of years including in 2016. It has reduced dependence on work visa.

The company applied for a significantly lesser number of visas, in fact, a third what it had applied for in the prior year.

"At TCS, onsite wages for a given role adjusted for experience levels and location choices are benchmarked against prevailing wages in that location. Average wages of expats on work visas and that of our local employees are highly converged and differences are largely attributable to the differences in average age and experience levels of the two groups of employees," the company had said.