TCS Q2 preview: Analysts anticipate PAT growth of up to 33% and deal wins –


Tata Consultancy Services (TCS), a major provider of information technology (IT), is expected to start the second quarter’s (Q2) earnings season strong on Friday. The majority of brokerages are projecting double-digit growth in net profit and revenue, driven by improved demand from the BFSI, healthcare, and retail sectors, as well as an acceleration of digital technologies, an increase in deal volume, and a recovery from the India market. Additionally, it is anticipated that significant players like Capgemini and Cognizant’s ongoing market share losses will immediately benefit.

On Friday, October 8, after market hours, the company is scheduled to release its financial results for the second quarter of the fiscal year 2021–22.

Global brokerage HSBC expects its net profit to increase by 32.8% year over year and 10.2% quarter over quarter to Rs 9,926.6 crore. In the same quarter a year earlier and the quarter before, the company posted a combined net profit of Rs 7475 crore and Rs 9,008 crore, respectively.

While ICICI Securities has a more conservative projection of a 22.3% growth at Rs 9,136.9 crore, Edelweiss Research and Reliance Securities predict PAT to increase by nearly 30% YoY. According to ICICI Securities, PAT is anticipated to increase by 1.4% QoQ, mainly due to greater other income.

According to the brokerage, revenue could increase by 16.6% YoY to Rs 46,800 crore from the Rs 40,135 reported in Q2-FY21. On a quarter-over-quarter basis, revenue is expected to increase 3.1% from the Rs 45,411 crore reported in the June quarter of the current fiscal year. TCS is anticipated to rise by 3.5% QoQ in constant currency (CC) terms. Additionally, according to ICICI Securities, cross-currency headwind will result in revenue growth of 3% QoQ in dollar terms.

On the other side, Edelweiss Research anticipates TCS to report Q2 FY22 sales of Rs 48,191 crore, up 20.1% YoY and 6.1% QoQ. According to HSBC analysts, revenue lost from the India business over the last quarter due to COVID-19 should come back. In light of this, HSBC projects a sequential revenue growth of 5% to Rs 47,737 crore. It may increase by 19% year over year. Nevertheless, it anticipates dollar sales increase of 4.7% QoQ and CC revenue growth of 5.5%.

TCS chart

The majority of brokerages predict a minor currency tailwind and operating leverage will lead to a small margin growth. Strong revenue growth, manageable currency fluctuations, and additional operational improvements this quarter could result in a margin increase of 50 bps QoQ to 26% as opposed to 25.5% for TCS, according to HSBC. Wage increases are behind us for TCS. Given that the EBIT margin was 23.2% in Q2FY21, the number might increase by 280 bps YoY.

Contrary to the majority of brokerages, ICICI Securities, due to greater subcontracting costs and reduced utilisation, sees its EBIT margin fall by 30 basis points (bps) QoQ to 25.2%.

Apart from that, the main metrics to watch will be the margin forecast, demand and pricing trends, as well as comments on deal wins.

The company provided outstanding returns to investors during the aforementioned quarter, with profits of 13% compared to a rise of the NSE Nifty of 12% and the Nifty IT pack of 20%. The returns are expected to reduce going forward, according to HSBC analysts, who feel there is little room for growth given the current valuations. The company gets a BUY rating from the brokerage and a Rs. 4,145 price objective.


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