The country's largest IT services exporter Tata Consultancy Services is expected to continue to deliver healthy earnings in October-December quarter though furloughs could impact some growth.
TCS, which will declare its quarterly earnings on January 10, is on track to deliver double-digit growth in financial year 2018-19, said brokerage houses which expect revenue growth in the range of 1.4-2.2 percent QoQ in constant currency terms and around a percent in dollar terms.
"We expect 1.8 percent QoQ constant constant currency growth (+1.1 percent USD growth) which implies 12.3 percent YoY growth in constant currency," Jefferies said.
Meanwhile, Edelweiss expects the maximum revenue growth for the quarter.
"We estimate TCS will deliver QoQ revenue growth of 2.2 percent in constant currency terms and 1.6 percent in US dollar terms," said Edelweiss, which expects robust momentum in the digital business to continue as corporations are looking for enterprise-wide implementation of digital technologies.
Motilal Oswal, which expects lowest revenue growth from TCS during the quarter, said revenue growth in constant currency could be around 1.4 percent in Q3 with cross currency headwind of 0.7 percent; hence growth in dollar terms may be around 0.7 percent QoQ.
"TCS cited a good demand environment with traction continuing in BFSI and retail in the foreseeable future, although some furloughs will affect growth in Q3," the research house said, adding execution of recent deal wins would ensure maintenance of revenue growth.
Brokers expect good operational performance due to rupee depreciation and efficiency gains. Barring Emkay, which sees flat EBIT growth as it expects INR depreciation benefits to get deployed into building capable workforce, all other brokers expect 30-10 bps expansion in margin QoQ.
"We expect EBIT margin of 27.2 percent in Q3, up 70 bps QoQ and 200 bps YoY helped by INR depreciation and efficiency gains," Jefferies said.
Meanwhile, Emkay expects flat margins on a QoQ basis as it expects INR depreciation benefits to get deployed into building capable workforce.
Motilal Oswal said, "We do not see any headwinds on margins due to supply issues as subcontracting expenses are getting priced into the pricing model, unlike peers. Some margin improvement will be a function of operational efficiencies and INR depreciation." EBIT margin is expected to be stable at 26.7 (+20bp QoQ), it added.
On the bottomline front, brokerages expect profit after tax to be flat to growth of 6 percent sequentially.
Emkay sees 6.3 percent growth in Q3 profit QoQ while PhillipCapital expects 3.2 percent rise in net income of the company. Motilal Oswal is the only among brokerage houses which expect profit to be flattish led by translation losses, partially offset by sequential growth in operating parameters.
Among other factors, CIMB expects tax rate to increase sequentially and other income (excluding forex income) to decline considering the buy back related payout.
Key things to watch out for:
Commentary on overall global demand outlook
Management comments relating to CY19F IT budgets (considering volatile macro),
Growth outlook in discretionary/digital services spend (especially for BFSI, Retail, US and UK)
Commentary on new large outsourcing deal pipeline and signings
Recruitment and M&A plans
Margin expectations for the next year amid retreating INR
Commentary on steps taken to cope up with the structural changes in the industry
Traction in new initiatives (Digital/automation/solutions)
Growth in Europe and APAC will be keenly monitored
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