India’s largest IT services company Tata Consultancy Services (TCS) is going to release its financial results for the June 2022 quarter on Monday, thus starting India Inc’s Q2FY23 earnings season. Brokerages expect an improvement in margin due to positive operating leverage, as compared to the previous quarter. Here’re important parameters the investors need to see in the results:
Revenue Growth
Analysts expect single-digit revenue growth in the range of 3.1 per cent to 4 per cent on a quarterly basis. Kotak Institutional Equities expects a sequential revenue growth of 3.1 per cent on canstant currency basis to be led by seasonal strength and growth in digital services, especially cloud servives.
IDBI Capital expects CC revenue growth of 4 per cent partially offset by 140 bps cross currency impact, while Jefferies estimates robust quarterly revenue growth of 3.5 per cent (CC) driven by deal ramp ups and a seasonally strong quarter.
Growth in Key Verticals
TCS has higher dependence on the banking, financial services & insurance (BFSI) and the retail verticals than its peers in the industry, and its growth in these segments will be a key watch out for. BFSI contributes the highest about 31 per cent of the company’s total revenues, while retail accounts for about 14 per cent to the total revenue.
Management Commentary on Outlook
Yes Securities said the management commentary on outlook on growth environment would be key thing to watch out for.
EBIT
Kotak Institutional Equities said EBIT margin is expected to increase from lows of June 2022 quarter, led by the absorption of wage revision rolled out in the earlier quarter. However, multiple margin headwinds do exist with high attrition and an increase in travel and discretionary expenses.
Deal Pipeline
Deal pipeline is also a key watch out for in TCS Q2FY23 results. Analysts expect moderate to strong deals on a year-on-year basis. Kotak Institutional Equities expects moderate growth in total contract value (TCV) of the deals on a y-o-y basis to $8-8.5 billion.
Edelweiss Securities expects strong deal wins, optimistic commentary and an update on client spending for the calendar year 2023 in an uncertain macro environment.
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