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Q1 is typically considered as a weak quarter for IT companies' margins given most companies roll out wage hikes in the April-June period
Mumbai based information technology services firm Tata Consultancy Services (TCS) will kick off the Q1 results season by announcing earnings on July 8. There are expectations that the company may report flat profit growth in the June quarter on a sequential basis. On the other hand, the EBIT margin may take a hit during the quarter due to salary hikes. Shares of the company traded 0.05% down at Rs 3,260 in the morning trade on Wednesday. On the other hand, the benchmark BSE Sensex was almost flat at 52,867.
Q1 is typically considered as a weak quarter for IT companies’ margins given most companies roll out wage hikes in the April-June period. Here’s a look at what leading brokerages expect from TCS’ June 2021 quarter numbers.
Emkay Global Financial Services
An assessment done by the brokerage house shows that TCS may post 0.5% growth in net profit on 5.1% rise in net sales. It believes that the EBIT margin may dip by 152 basis points to 27.80%. “We build in 4% QoQ revenue growth in dollar terms with around 10 basis points cross-currency tailwinds. EBIT margin is expected to decline due to salary hikes. One should watch demand trends in key verticals like BFSI, retail, manufacturing and communications, deal intake in Q1, management commentary over the deal pipeline and deal closure momentum, pricing environment, margin outlook and supply-side challenges and attrition,” the brokerage said. Emkay has a ‘Hold’ call on TCS with a price target of Rs 3,500. On the other hand, the brokerage sees 34.50% YoY growth in net profit on a 19.90% rise in net sales in the June quarter.
Motilal Oswal Financial Services
The brokerage projected that adjusted profit after tax of the company may grow 0.7% QoQ and 32.60% on YoY basis. It also estimated that the EBIT margin may slip 160 basis points on a QoQ basis to 25.20%. On the other hand, it believes that the figure may increase by 160 basis points on a YoY basis.
Nirmal Bang Securities
While TCS is aspiring for double-digit growth in FY22, greater clarity is required on whether it could meet the mid-teen growth that the market has priced in. Some colour on QoQ growth for the rest of FY22 would be one of the key monitorable. The brokerage firm believes that the total contract value (TCV) of order inflow is a key monitorable to gauge the pace of growth in the second half of FY22 and beyond. “While the deal flows could be volatile across quarters, any material weakness could be looked at with concern. Investors should also focus on the nature of revival in stressed sectors of travel, tourism, hospitality, aerospace and auto manufacturing. The extent of the impact on margins from the company-wide salary hike that was given starting Q1FY22,” the brokerage said. It sees a 2.10% QoQ fall in profit after tax on a QoQ basis on 4.3% growth in revenues.