Earnings Preview: Blips stay, but TCS may beat St view
The key to future growth here is areas like consulting and cloud computing. Analysts would be watching closely management comments on Thursday in this space.<br /><br /> <br /><br />
Tata Consultancy Services (TCS), the biggest software services provider, is expected to beat Street estimates. The company is expected to report a net profit of Rs 2,158 crore in June quarter, a fall of 10% over the March 2011 quarter. This is largely on the back of a wage hike effected in the June 2011 quarter. Revenue is expected to grow 5% over March quarter to Rs 10,600 crore.
According to securities firm Motilal Oswal, key issues to look for in TCS results are hiring guidance, profit margin decline, performance of discretionary segments (EnterpriseServices, Manufacturing) and operational performance in Europe.
The TCS management expects all verticals to report a strong growth in business except telecom, according to Kotak Securities. The telecom vertical was affected as British Telecom cut back on IT spending. British Telecom is a key client of both TCS and Infosys. The key to future growth here is areas like consulting and cloud computing. Analysts would be watching closely management comments on Thursday in this space.
TCS and Infosys need to grow volume in the consulting domain. The surge at rival Accenture indicates that the discretionary spending in the US is improving. This spending by Fortune 500 companies leads to significant business for IT outsourcing companies. Infosys Technologies reported earnings slightly below market expectations. IT services shares have traded flat or in negative territory since Tuesday.
The stock market already believes that TCS is poised to grow consistently. TCS shares have outperformed the broader market and the peer group. They rose 45% in the past one year while the BSE IT sector index gained only 6.8%. This indicates the market clearly expects TCS to deliver high returns.