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TCS preview | BFSI, retail to dent Q3 show; rupee weakness to drive margin

For Q3FY20, Motilal Oswal expects a 2.3% YoY or 3.3% QoQ rise in the PAT for TCS to the tune of Rs 8,305 crore.
Jan 17, 2020 / 10:37 AM IST
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IT heavyweight Tata Consultancy Services (TCS) will release its December quarter (Q3) scorecard on January 17. Analysts expect the numbers to be tepid.

While the numbers will show the hits and misses during Q3FY20, investors will focus on - demand from impacted BFS and retail verticals; the impact on new outsourcing deals in a US Presidential election year; overall IT budgets and spending outlook; TCV of deals; pipeline of large deals; and measures taken to mitigate supply-side pressures in the US.

Domestic brokerage firm Motilal Oswal Financial Services expects a softer BFSI and retail numbers for TCS for the December quarter. The brokerage is of the view that better utilisation and rupee's depreciation will drive margins.

For Q3FY20, Motilal Oswal expects a 2.3 percent year-on-year (YoY) or 3.3 percent quarter-on-quarter (QoQ) rise in the PAT for TCS to the tune of Rs 8,305 crore.

"Revenue may see a rise of 6.6 percent YoY to Rs 39,788.5 crore. In the dollar terms, the revenue may come at $5,588 million. EBITDA margin may come at 27.1 percent," Motilal Oswal said in a report.

On the other hand, brokerage firm Kotak Securities expects a 1.5 percent YoY increase in reported PAT for TCS at Rs 8,224.3 crore for Q3.

Kotak's estimates show an 11 bps YoY fall in EBITDA margin percentage at 26.9, while net sales or revenue may come to the tune of Rs 39,864.4 core, up 6.8 percent YoY and 2.3 percent QoQ.

"We expect revenue growth to moderate to 6.8 percent in constant currency (CC) basis on YoY comparison due to slowdown in BFS and retail and high base of the previous year. On a sequential basis, we expected a muted revenue growth of 0.8 percent," said Kotak Securities.

"CC tailwind on a sequential basis is 60 bps, while we expect headwind of 30 bps on YoY comparison. Rupee depreciation, the cross-currency tailwind of 60 bps and an increase in employee utilisation rate will contribute to a sequential increase in EBIT margin," the brokerage said.

Kotak expects a YoY decline in margin, while other income may decline sequentially to Rs 975 crore from Rs 1,170 crore in Q2FY20 due to the payout of over Rs 20,000 crore in the form of dividend and lower forex gain.

As per Kotak Securities, the lacklustre Q3 show of TCS can be attributed to the continued weakness in European banking and capital market clients in the US and to the account-specific challenges in retail vertical also.

Another brokerage firm Edelweiss Securities expects a 7.4 percent YoY and 2.9 percent QoQ rise in TCS' Q3 revenue to the tune of Rs 40,110.8 crore.

"After a slow H1FY20, We expect TCS to deliver 1.7 percent CC revenue growth, whereas a strong GBP (up 4 percent QoQ against USD) should help lift USD revenue growth rate by 40bps," Edelweiss said.

"Gains from a weak rupee and operational rigour should help TCS expand margins by 40 bps QoQ. We will be monitoring commentary on the macro environment and demand in BFSI & retail," Edelweiss added.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Jan 17, 2020 10:37 am

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