TCS Q2 preview: Analysts see up to 33 % PAT growth; deal wins eyed

Information technology (IT) major Tata Consultancy Services (TCS) is likely to kick-off the July-September quarter (Q2) earnings season this Friday on a firm note. Most brokerages are pencilling in double-digit growth in net profit and revenue, led by improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies and ramp-up of deals along with recovery from the India market. Furthermore, persistent market share loss of key players such as Capgemini and Cognizant is also expected to directly benefit TCS.

The company is slated to post its numbers for the Q2 of the financial year 2021-22 on Friday, October 8, post market hours.

Global brokerage HSBC eyes a 32.8 per cent year-on-year (YoY) and 10.2 per cent quarter-on-quarter (QoQ) rise in the net profit at Rs 9,926.6 crore. The firm had reported a consolidated net profit of Rs 7475 crore in the same quarter a year ago and Rs 9,008 crore in the preceding quarter.

Edelweiss Research and Reliance Securities expect over 30 per cent YoY jump in PAT, although ICICI Securities has a more modest expectation of 22.3 per cent increase at Rs 9,136.9 crore. PAT is expected to improve by 1.4 per cent QoQ mainly led by higher other income, ICICI Securities said.

In rupee terms, revenue, the brokerage said, could rise 16.6 per cent YoY to Rs 46,800 crore from Rs 40,135 posted in Q2-FY21. Meanwhile, on a QoQ basis, revenue is seen rising 3.1 per cent as compared with Rs 45,411 crore reported in the June quarter of the current fiscal. “TCS is expected to register 3.5 per cent QoQ growth in constant currency (CC) terms. Further, cross-currency headwind is expected to lead to revenue growth of 3 per cent QoQ in dollar terms,” ICICI Securities added.

Edelweiss Research, on the other hand, expects TCS to report Q2 FY22 revenue at Rs 48,191 crore, up 20.1 per cent YoY and 6.1 per cent QoQ. Revenue lost from the India business, which was impacted by COVID-19 in the last quarter, should return, believe analysts at HSBC. Amid this backdrop, HSBC eyes a sequential 5 per cent growth in revenue (rupee terms) at Rs 47,737 crore. On a YoY basis, it could rise by 19 per cent. That said, it expects the dollar revenue growth of 4.7 per cent QoQ and CC revenue growth of 5.5 per cent.

Most brokerages anticipate a slight margin expansion, driven by operating leverage and marginal currency tailwind. “Wage hikes are behind for TCS, strong revenue growth, benign currency movements and further operational gains this quarter should see a margin increase of 50 bps QoQ to 26 per cent as against 25.5 per cent,” HSBC said. The figure could expand by 280 bps YoY as the EBIT margin stood at 23.2 per cent in Q2FY21.

However, contrary to most brokerages, ICICI Securities sees a contraction of EBIT margin by 30 basis point (bps) QoQ to 25.2 per cent on account of higher subcontracting costs and lower utilisation.

That apart, margin outlook, demand and pricing trends along with deal win commentary will be some of the key monitorables.

During the said quarter, the company has offered strong returns to investors with 13 per cent gains as against a 12 per cent rise in the NSE Nifty and 20 per cent in the Nifty IT pack. Analysts at HSBC expect the returns to moderate from hereon as they believe with the valuations high, there is little scope for upside. The brokerage has a BUY rating on the stock with a target price of Rs 4,145.

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