Tata Consultancy Services to announce third quarter results today; here's what to expect

Sandip Agarwal and Pranav Kshatriya analysts of Edelweiss Financial Services said, “TCS’ execution capability, client relationships and leadership are impeccable. We believe, few niggling issues like LATAM, Diligenta and Japan, which have taken a toll on the company’s overall growth rate in past few quarters, are probably in the last leg and be largely over by FY18."

Profit after Tax (PAT) for TCS is estimated to be at Rs 63.9 billion, (-3%) qoq and 4.6% yoy, added HDFC. Photo: Official Website

Tata Consultancy Services (TCS) is set to announced its third quarter result on Thursday. IT sector results, especially, TCS, Wipro and Infosys, will be closely watched given IT spending slowdown globally and President Elect of USA Donald Trump's tirade against H1-B visas.

Sandip Agarwal and Pranav Kshatriya analysts of Edelweiss Financial Services said, “TCS’ execution capability, client relationships and leadership are impeccable. We believe, few niggling issues like LATAM, Diligenta and Japan, which have taken a toll on the company’s overall growth rate in past few quarters, are probably in the last leg and be largely over by FY18."

The duo added, “We remain positive on TCS, but believe it will be difficult for the company to regain industry-leading revenue/earnings growth in the near term, delaying its re-rating.”

While Kawaljeet Saluja and Jaykumar Doshi analysts of Kotak Institutional Equities said, “We expect TCS to report 1.3% growth in c/c and cross-currency impact of 150 bps. We expect TCS to be able to maintain stable margin, offsetting the impact of cross currency headwinds with operational improvements.”

Kotak feels investors will focus on four key factors for TCS this Q3. They are; (1) demand environment across verticals, budgeting cycle and its implications for CY2017 outlook and impact of insourcing to captives, if any, in key clients (2) TCS' positioning in the evolving digital landscape and growth outlook for digital practice, (3) risk mitigation from any potential increase in minimum wages for H-1B workers and (4) margin outlook.

Edelweiss stated that, TCS’ utilisation levels and FPP (full packaged product) contribution have almost peaked and improvement ahead seems difficult. It has ranked the company at number 3 with modest 95 basis points (bps) margin improvement potential.

Thus based on bottom-up revenue and margin model, Edelweiss estimate the company to post revenue/EPS CAGR of 9.5%/6.6%, over FY17-19.

In terms of digital revenue contribution, Edelweiss said, "As they are structural growth drivers, their impact will vary between players based on individual strengths and capabilities."

On the other hand, HDFC Securities said, "We expect US$ revenue growth of 0.2% QoQ (1.5% CC) and 5.7% YoY, factoring -130 bps cross currency impact sequentially to US$ 4,381 million; 9MFY17/FY17E revenue growth at 6.3/7% YoY (year-on-year). While EBIT% is expected at 25.7%, -30bps QoQ largely impacted negatively by cross currency."