TCS to report sequential recovery in Q2 on strong deal flow

ET Intelligence Group: Tata Consultancy Services () is expected to report a sequential bounce back in the September 2021 quarter after a slack in the previous quarter due to disruption in Indian operations. With lower Covid caseload, rising vaccination, and business returning to normalcy, its India business is likely to be back on growth track. In addition, traction in its overseas operations remains intact with a sustained deal momentum. The country’s largest software exporter is slated to declare results on Friday late evening.

According to the average of the estimates of ETIG and six brokerages, the company is likely to report 3.8% sequential increase in revenue to $ 6,388.3 million for the September quarter compared with the 2.8% increase in the previous quarter.

Kotak Institutional Equities Research expects 5.3% sequential revenue growth, excluding currency fluctuations led by 15% jump in India business and 4.7% growth in the international markets. According to the brokerage, strong spends on digital and short cycle programs, conversion of order bookings of earlier quarter into revenue, and recovery in India after a sharp contraction of 14.1% in the June 2021 quarter will power the performance in the September quarter.
In rupee terms, revenue is expected to grow by 4.1% to Rs 47,260.4 crore while net profit may rise by 4.9% to Rs 9,444.7 crore. In the previous quarter, revenue had increased by 3.9% while net profit had fallen by 2.6%.

The operating margin (EBIT margin) may remain stable or even improve by 50-70 basis points depending upon the subcontracting costs and selling and admin costs compared with 25.5% in the previous quarter. Since the company had undertaken salary revisions in the June quarter, that would not affect the margin in the September quarter. But, higher recruitment costs due to rising attrition in the sector may impact profitability.

The management commentary will be crucial in knowing whether with ease the company would be able to achieve the goal of a double-digit revenue growth for the fiscal year. In a preview report, Elara Securities (India) stated that the key monitorable factors will be the total contract value of deals, performance of banking, finance, retail and consumer verticals, and commentary on large deals.