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TCS Results Preview: Demand commentary, hiring trends, deal wins to be in focus

business | Oct 7, 2022 2:58 PM IST

TCS Results Preview: Demand commentary, hiring trends, deal wins to be in focus

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Shares of the IT behemoth have declined 19.5 percent this year, underperforming the benchmark Nifty 50 index.

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Information Technology bellweather Tata Consultancy Services (TCS) will begin the September quarter earnings season on Monday, October 10.
With clients getting more cautious on the back of macroeconomic concerns, the focus will be on the management commentary on demand and deal wins.
According to a CNBC-TV18 poll, the company's US Dollar revenue growth is likely to remain flat compared to the June quarter while rupee revenue is likely to grow in low-single digits. Ebit margins are likely to expand by 70 basis points quarter-on-quarter while net profit may grow in the high-single digits.
While maintaining its end-of-year margin forecast at 25 percent, TCS' management expressed optimism over the September quarter being better than the June one. During the June quarter, the company reported steady revenue growth but margin contraction turned out to be steeper than anticipated.
European Concerns
Although TCS gets majority of its revenue from North America, an area of worry has been Europe and the UK, which contributes 30 percent to revenue. The Eurozone and the UK have been weighed down by record inflation and geopolitical tensions between Russia and Ukraine. The management, during its June quarter earnings call had also spoken about clients in Europe being watchful. Here's what CEO Rajesh Gopinathan said:
Some clients, particularly in Europe have expressed concerns about the macroeconomic fallout of the ongoing conflict there. But the predominant sense is that technology spending will be resilient. That said, given the macro level uncertainties, we remain very watchful.
Also Read: TCS remains watchful as IT sector stares at slowing demand in Europe 
Despite the caution, clients have largely left their tech budgets for the year to be unchanged. Commentary from the management will be awaited on whether the second half of the financial year will see any budget cuts? and will there be delays in the ramp up of projects?
During the June quarter, TCS won deals worth $8.2 billion, which although increased only 1 percent year-on-year, it was above the management's internal projections of $7 billion to $9 billion.
Indian IT companies have also been in focus for their hiring plans. Last month, Wipro fired over 300 employees for moonlighting while some freshers are yet to be onboarded despite receiving offers from major companies. During the June quarter, TCS hired 14,136 new employees compared to an average of 25,000 over the last four quarter.
Bloomberg reported last month that the company is looking to grow its headcount by 15 percent in the Asia Pacific region. For TCS, employee attrition is stable month-on-month even though it is still above comfort levels, according to broking firm CLSA.
Key highlights from the management commentary during the June quarter:
  • North America will be the primary growth driver for next 3-4 quarters
  • Deal pipeline is strong and broad-based
  • Two largest deals were just over $400 million in Total Contract Value (TCV).
  • Looking at maintaining a TCV of $7 billion to $9 billion per quarter
  • Even if a recession occurs in the US, it will mostly be a shallow one
  • Jefferies anticipates a strong quarter for TCS driven by deal ramp-ups and September generally being a seasonally strong quarter. It expects margins to improve due to operating leverage and pricing benefits.
    Shares of TCS have declined 19.5 percent this year.
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