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TCS Results at 4 PM: Revenue to rise 4% QoQ (consensus)

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Tata Consultancy Services Ltd is scheduled to report its first-quarter results at 4 pm today.

India’s biggest IT services company has been giving out disappointing quarterly numbers for over a year, and the market is hoping that the IT major will not disappoint this time.

We bring you a summary of what different analysts expect from TCS’ results today.

Edelweiss

USD revenue growth of 5.0% QoQ, driven by growth in key verticals like BFSI, manufacturing retail, etc. Wage hike and visa costs to dent margins but partially offset by favourable currrency. We have built 210bps seqeuntial dip (adjusting for the special bonus given last quarter) in EBITDA margin. We have not built in any forex gain for this quarter. Commentary on demand environment, discretionary spending, investments in digital technologies, measures to tackle attrition and margin levers are key monitorables.

ICICI Securities

US$ revenues may grow 3.9% to $4,052 million while those in rupee could grow 6% to | 25,678 crore. Constant currency revenues may grow ~4% as cross currency headwinds subside vs. 240 bps negative impact in Q4FY15. Retail, BFS and manufacturing could lead while telecom, insurance and energy could be tepid.

Adjusted for one-time employee bonus payout in Q4, EBIT margins may decline 200 bps QoQ to 25.2% led by wage hikes, visa costs and SG&A spends partially offset by currency tailwinds. Investor interest: Demand trends across verticals and geographies, traction in digital technologies and measures to control rising attrition.

Centrum

We expect TCS to deliver strong USD revenue growth of 4% QoQ for the quarter. Headwinds from wage hikes and visa costs would be partially negated by tailwinds from rupee depreciation. We expect EBIDTA margins of TCS to drop by 170 bps QoQ. PAT is likely to drop sequentially by 9.7% owing to drop in EBIDTA margins.

TCS has been missing street estimates on the revenue front for the past three quarters which has led to the stock languishing within a range. We believe that revenue stability is the key metric to watch for in TCS’ result in 1QFY16. We model company to deliver 12% USD revenue growth for FY16E which is the strongest among Tier 1 IT vendors.

We have a Hold rating on TCS with a target price of Rs 2,700/sh (19x FY17E EPS) and we retain our stance.

IndiaNivesh

We expect seasonality to play out in Q1FY16E and expect $‐revenue growth of 4.1% Q/Q. The growth is likely to be driven by key verticals like BFSI, Manufacturing, and retails verticals.

EBITDA margin is likely to contract by 219 bps Q/Q on account of wage hike, one‐time employee bonus ($423 mn), and visa related cost. However, net profit is likely to expand by 37.6% Q/Q due to higher other income and currency tailwinds.

Key things to watch out for are (1) Demand and margin commentary in FY16E, (2) Growth outlook on insurance, telecom and energy verticals, and (3) update on digital initiatives.

Sunidhi Securities

We expect USD revenue growth to be 3.5% during the quarter (+3.6% QoQ in constant currency terms). Cross currency negative impact of 10bps. EBITDA margin to decline by ~140bps due to wage hike and visa cost. Will lookout for commentary on demand environment, CY15 IT budgets, pricing and discretionary spends in FY16.

Systematix

Revenue outperformance to continue with 4.4% qoq volume growth despite sustained challenges in the Energy and Insurance (Diligenta) verticals. To watch out for traction in Digital business, given sustained challenges in the traditional services. Recovery in the retail and BFSI segments.

1Q has traditionally been a strong period given more working days and ramp-up on the fresh budget allocations during 1QCY15 by clients. However, 1Q may not be consistent across vendors this year as indicated in several earnings warning by TechM, KPIT and Persistent.

Microsec Research

We expect TCS’ $ top line to increase 2.6% sequentially to $4,001.4 Mn whereas INFY’s $ revenues are expected to grow by 1.8% q-o-q to $2,197.9 Mn in Q1 FY2016E. This is likely to translate into 4.9% and 4.1% sales growth in local currency for TCS and INFY, respectively. On margins front, while TCS may report a notable improvement in profitability, INFY is likely to report a decline in the same. In addition, we believe that INFY will continue to report a downward trend in attrition levels in Q1 FY2016E.
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