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India’s largest IT services company Tata Consultancy Services (TCS) will on Friday release its financial results for the June 2022 quarter, thus starting India Inc’s earnings season. Analysts said investors need to keep an eye out on the company’s margin outlook, the management commentary on US and European markets. Here’re important parameters the investors need to see in the results:

EBIT Margin

TCS’ EBIT margins are expected to decline 110 bps quarter-on-quarter to 23.9 per cent due to wage revision in both onsite & offshore; increase in retention costs; some increase in travel costs, ICICI Securities said in a report.

Revenue Growth

Analysts expect the company’s revenue growth momentum to pick up on account of acceleration in deal execution but margins are expected to be impacted by annual salary wage revision effective from April 2022.

“TCS is expected to register 3 per cent quarter-on-quarter growth in constant currency led by continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies, ramp-up of deals. Further, cross currency headwinds of 140 bps would lead to revenue growth of 1.6 per cent q-o-q in dollar terms. In rupee terms, revenue is expected to increase 3.8 per cent q-o-q aided by rupee depreciation,” ICICI Securities said.

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

BNP Paribas said the commentary on the US and European markets will be key thing to watch out for.

Deal Pipeline

BNP Paribas expects a strong deal pipeline in the quarterly announcements. “We expect dollar revenue growth of 1.7 per cent q-q (3.2% q-q in CC) on broad-based growth and a strong deal pipeline.”

On the entire IT sector, ICICI Securities said the demand environment is expected to be strong due to continued deal momentum led by sectors like BFSI, insurance, etc, but we need to be watchful on how macro as well as geopolitical risks play out, especially in H2FY23, which is expected to set tone for FY24 numbers.

During the March 2022 quarter, TCS had reported a consolidated net profit of Rs 9,926 crore, a jump of 7.35 per cent on a year-on-year basis. The net profit had stood at Rs 9,246 crore in the corresponding period of the previous financial year. The company’s revenue during January-March 2022 rose 15.75 per cent to Rs 50,591 crore, compared with Rs 43,705 crore in the year-ago period.

Its total expenditure also increased by 18.74 per cent to Rs 37,963 crore, against 31,971 a year ago, according to a BSE filing by the company. The company’s consolidated operating income increased 6.79 per cent to Rs 12,383 crore, against Rs 11,596 crore earlier.

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