Q2FY18: What do analysts expect from TCS?

TCS disappointed analysts expectation by witnessing drop of 5.85 in consolidated net profit to Rs 5,950 crore in Q1 versus Rs 6,318 crore during the same period last year.

The Tata Consultancy Services headquarters. Photo: Official Website

Share price of IT-giant Tata Consultancy Services (TCS) jumped more than 1% on stock exchanges ahead of it's result for second quarter ended September 30, 2017.

At 1318 hours, the company's stock was trading at Rs 2518 per piece above Rs 17.50 or 0.70% on BSE.

In Q1FY18, TCS witnessed a drop of 5.85% in consolidated net profit, at Rs 5,950 crore versus Rs 6,318 crore during the same period last year. Net income in Q1FY18 stood at Rs 5,945 crore, a decline of 5.9% on year-on-year basis.

Total employee strength at the end of Q1 was 3,85,809 on consolidated basis with gross addition of 11,202 and net addition of 1,414 employees during the employees.

Ashish Chopra and Sagar Lele, analysts at Motilal Oswal said, "Revenue growth for TCS has been dragged lower by the softness seen in BFS and Retail. Although it has been seeing a pick-up in insurance and emerging verticals, pressure points have been restricting growth."

The duo expects a continuation of these factors to result in capped seasonal strength, leading to 3.2% QoQ (quarter-on-quarter) USD revenue growth.

Madhu Babu, analyst at Prabhudas Lilladher provided similar projection for TCS's revenue growth. He added,"Cross‐currency would be a tailwind of ~140bps for the quarter owing to
appreciation of GBP/Euro/AUD/CAD v/s USD."

On BFSI segment, Babu added, "TCS has cited that BFSI vertical (~33% of total revenues) traction has been slower than its earlier expectations. Retail vertical (~12.2% of total revenues) has shown tepid performance in FY17 and we expect the same to continue to FY18 as well."

Traction in Digital Business which accounts for 18.9% of company’s revenues would also be watched.

At the same time, EBIT (earnings before interest tax) is estimated at 24.2% (+80bp QoQ), yet below the lower end of the guided range of 26-28%.

Thus, profit after tax (PAT) has been forecasted at Rs 6400 crore higher by 7% on qoq but lower by 3.4% on yoy basis. EBITDA growth is seen at Rs 7872 crore this Q2.

While investors were boosting the TCS share ahead of Q2, it's rival Infosys was facing selling pressure. The Infosys share price was trading at Rs 921 per piece down by 1.03%.

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