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Last Updated : Oct 09, 2019 12:29 PM IST | Source: Moneycontrol.com

TCS Q2 preview: Brokerages expect mixed results; BFSI, weak IT spending may drag growth

Along with the numbers, brokerages say, outlook and visibility for double-digit growth in FY20, commentary on BFS and trajectory of margins amid rising sub-contractor expenses are the key points to watch out for.

Nishant Kumar @Nishantopines
 
 
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Tata Consultancy Services (TCS) will release its July-September quarter numbers on October 10 and brokerages expect the IT heavyweight to report a mixed set of numbers this time.

Along with the numbers, brokerages say, outlook and visibility for double-digit growth in FY20, commentary on BFS and trajectory of margins amid rising sub-contractor expenses are the key points to watch out for.

"Segment-specific issues in BFS, especially in capital markets, are expected to exert pressure. Weak IT spending by a couple of European banks can further drag growth. In addition, the recovery in retail may be delayed, putting further pressure on the growth rates. All of these may lead to divergence from double-digit growth expected earlier," said brokerage Motilal Oswal Financial Services.

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Here are five key points that brokerages have predicted for TCS:

Constant-currency growth

Kotak Securities expect CC revenue growth of 2.6 percent and cross-currency headwind of 75 bps on a QoQ basis.

Prabhudas Lilladher expects TCS to post CC revenue growth of 3.2 percent and cross-currency headwinds of 72bps and moderation in revenue growth due to client-specific issues in BFSI vertical in Europe.

Motilal Oswal expects QoQ revenue growth to be constrained at 2.3 percent constant currency (CC), implying YoY growth of 8.8 percent.

Revenue

Most brokerages expect over 7 percent YoY growth in the second-quarter revenue of TCS.

Edelweiss Securities expects TCS to report a 7.7 percent YoY growth in revenue at Rs 39,681.9 crore for the second quarter of FY20.

Kotak projected a YoY growth of 7.1 percent to Rs 39,453.7 crore and Prabhudas Lilladher expects it to come at Rs 39,536.6 crore with a YoY growth of 7.3 percent.

EBITDA

As per the estimates of Prabhudas Lilladher, EBITDA will climb by 4.6 percent YoY to Rs 10,746.1 crore against Rs 10,278 crore in the corresponding quarter of the last financial year.

Kotak Securities said EBITDA will see a YoY jump of 6.7 percent to Rs 10,969.3 crore while Edelweiss Securities' estimates show a 5 percent growth in EBITDA.

EBITDA margin (%)

Kotak Securities expects a 9 bps YoY decline in EBITDA margin at 27.8 percent for Q2FY20 against 27.9 percent in Q2FY19.

Prabhudas Lilladher said a 71 bps YoY decline in EBITDA margin is possible. TCS may see it slipping to 27.2 percent in the second quarter.

Adjusted PAT

"With an 8.1 percent YoY gain, TCS may report adjusted PAT to the tune of Rs 8,542.7 crore," said Prabhudas Lilladher.

Kotak estimated it slightly lower. As per it, the adjusted PAT may see a YoY increase of 6.3 percent to Rs 8,396.6 crore. The estimates of Edelweiss showed it even lower at 3.2 percent YoY at Rs 8,150.5 crore.

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.

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First Published on Oct 9, 2019 12:29 pm
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