TCS quarterly results today; can revenue, net profit inch back to pre-coronavirus levels?

Information Technology major Tata Consultancy Services (TCS) will announce its July-September results today and leading domestic and global brokerage firms are expecting quarter-on-quarter jump in revenues, margins, and profits. Tier-1Information technology players are expected to post strong quarterly results nudged by deal wins, easing of supply side troubles and rapid digitization across the globe. TCS being the biggest IT player, in terms of market capitalization, definitely stands to benefit from the tailwinds that the sector is expected to witness. Shares of the firm were moving between gains and losses on Wednesday morning to trade at Rs 2717 per share. 

Revenue
Global brokerage and research firm HSBC in a recent note said that it expects TCS’ revenue to be Rs 39,113 crore in the second quarter and in US Dollar terms it is expected to be $5,326, which is 2.1% and 3.5% on-quarter increase. Nomura too expects revenue to be in the same range at Rs 39,130 crore. On the other hand, Bank of America Securities (BofA) has pegged the revenue at Rs 39,638 crore. Leading domestic brokerages too believe that the revenue will be somewhere above Rs 39,000 crore with Kotak Securities expecting revenue to be at Rs 39,267 crore. This means in revenue terms TCS would be above pre-coronavirus levels, according to most brokerage firms.

EBIT

Earning before interest and taxes are expected to also grow from the previous year. HSBC sees EBIT to be at Rs 9,387 crore in the second quarter against Rs 9,048 crore in the previous quarter. This would help EBIT margins to reach pre-coronavirus levels at 24%, according to HSBC. Motilal Oswal in a reset preview note has pegged the expected EBIT at Rs 9,800 crore and EBIT margin at 24.8%, going way past the previous year. Kotak Securities has its expectations going even further at Rs 9,900  crore taking EBIT margin at 25.2%.

Net Profit

Coming to net profit, TCS is expected to beat previous quarterly net profit but not the profits of the previous year. BofA expects PAT to be Rs 7,856 crore which would be 12% above the previous quarter but down 2% from the previous year. Nomura’s net profit expectations take TCS’ profits to Rs 7,881 crore. In the same period last year, TCS had a net profit of Rs 8,0000 crore. 

What to watch out for?

Analysts say that commentary from TCS management around deal wins and revenue growth projections are to be closely watched. Nomura says that outlook for the BFSI and Healthcare business and update on recovery in top accounts in BFSI is a key monitorable for the IT sector. Additionally the board of TCS will also consider an equity share buyback. According to ICICI Securities the buyback could be somewhere near Rs 20,000 crore. 

Market participants say that a stronger than expected pickup in the BFSI space and retail segment could push the stock higher. “Downside risks to our price objective are large scale changes to the H-1B visa program in US and appreciation of the INR vs. USD,” said BofA in a report.

Should you buy?

“We value TCS at a target PE of 25x on 12-month forward earnings. Our target multiple for TCS is at a 25% premium to the long-term industry average for the past five years as it remains the best managed company, in our view,” HSBC said in a report. It has a ‘Hold’ rating on the stock. Nomura has a ‘Neutral’ rating on TCS shares. 

BofA has a price target of Rs 2,550 per share based on a target P/E of 25x for 12 months ending September 2022. Motilal Oswal has a target price of Rs 2,800 with a Neutral rating on the stock.