TCS may post 2% sequential drop in Q4 revenues; other key aspects to look for
Any lacklustre numbers from TCS may hardly surprise the street, as the entire IT sector has witnessed a muted performance in the last one year or so in the backdrop of currency headwinds, US visa issues and sluggish global demand
Post the subdued earnings from the Bengaluru-headquartered Infosys last week, all eyes are on the country's number one software company Tata Consultancy Services, which is set to announce its results later today.
According to analysts, TCS numbers may not be completely different from Infosys as most of the challenges the IT industry has been going through over the past 6-12 months continue to remain key concerns for several top-notch software firms.
According to CNBC-TV18 poll estimates, TCS may register a two percent sequential drop in net profit at Rs 6,638 crore, while revenue in dollar terms could rise 2.1 percent on-quarter to $4.5 billion in the fourth quarter ending 31 March.
HDFC Securities expects TCS to post 1.9 percent revenue growth. The report said that for TCS the key monitors will be BFSI vertical performance, diligenta outlook as headwinds have abated, a Zee Business report said.
Earlier in the day, Reliance Industries saw its market capitalisation soaring to a record high of about Rs 4.58 lakh crore in morning trade at around 1015 hours, exceeding TCS's Rs 4.56 lakh crore valuation at that time.
Any lacklustre numbers from TCS may hardly surprise the street, as the entire IT sector has witnessed a muted performance in the last one year or so in the backdrop of currency headwinds, US visa issues and sluggish global demand.
TCS has steadily reduced its dependency on global work visas, but any change in policy stance by the US government could hurt margins of most IT firms, including that of TCS.
According to a Moneycontrol report, TCS stock has given negative returns of around 4 percent post-earnings announcement in three out of four occasions. For instance, TCS shares declined nearly four percent after the company announced December quarter results in January.
In the last quarter (Oct-Dec), TCS had surprised the street with a rise of nearly 11 percent in net profit at Rs 6,778 crore on a year-on-year basis and nearly three percent gains in sequential profit. Similarly, revenues grew 8.7 percent at Rs 29,735 crore on-year and rose 1.5 percent on-quarter basis.
After N Chandrasekaran shed his post as Chief Executive Office (CEO) to become chairman of Tata Sons, all eyes will be on the new TCS CEO, Rajesh Gopinathan, who will announced his first quarterly results today.
Some of the key things that markets will focus on are:
Will the rupee appreciation hurt margins?
The rupee has appreciated sharply against the dollar during the fourth quarter with the Indian currency mostly hovering at 65 levels. According to a report in the Business Standard, a stronger rupee could bring down operating margin by 20-30 basis points in the fourth quarter of 2016-17, and if continues for a longer period the earning estimates could be further moderated.
Tough global environment
The geopolitical environment has continued to remain challenging, with the overhang of Brexit in Europe and worries of stricter US legislation creating more uncertainty for the sector. The management commentary on banking and financial services (BFSI) and retail segments will be keenly watched.
Later in the day, US President Donald Trump is expected to sign a presidential order against H-1B visas, which could have some repercussions on the Indian IT services sector.
Focus on digital business
As global IT companies shift from the traditional services business to digital technologies like cloud computing, artificial intelligence, TCS's growth numbers for this segment will be crucial as the category accounts for 16.8 percent of total revenue growth.
US President Donald Trump's proposed changes to the H-1B visa program may end up benefiting Indian IT professionals in terms of higher wages, a US expert today said.
More than H-1B visa issue, Indian IT companies feel the heat of rising rupee against dollar, say analysts
More than the US visa issue, analysts are concerned about the appreciating rupee that could further hit the margins going ahead
TCS posted a marginal increase of 1 percent in its consolidated revenue at Rs 29,584 crore during the quarter