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TCS Q2FY21 preview: Revenue growth recovery expected; PAT likely to take a hit

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Tata Consultancy Services (TCS), the country’s largest software services exporter, is likely to see a recovery in revenue growth and improvement in the margin for the second quarter of fiscal 2021.

Tata Consultancy Services (TCS), the country’s largest software services exporter, is likely to see a recovery in revenue growth and improvement in the margin for the second quarter of fiscal 2021.
The company is set to release its September quarter earnings on October 7, Wednesday.
According to CNBC-TV18 analysts’ poll, the IT major’s revenue in Q2FY21 is expected to rise 2.6 percent to Rs 39,330 crore as against Rs 38,322 crore in the previous quarter. Revenue in dollar terms may rise 4.7 percent to $5,297 million as against $5,059 million in the June quarter. Revenue growth in CC terms is expected to be at 3 percent, when compared to the previous quarter.
Revenue growth will be driven by normalization of supply-side constraints and ramp-up of large deals signed earlier. Recovery will likely be led by financial services and communications, while retail and manufacturing will be flat to marginally lower, analysts said.
However, despite Q2 growth recovering, FY21 dollar revenue growth is still seen down by 5-6 percent.
Profit after tax (PAT) may decline by 3.7 percent to Rs 6,744 crore from Rs 7,008 crore, sequentially impacted by an exceptional provisional loss of Rs 1,218 crore towards Epic Systems lawsuit.
Operating performance is expected to improve with EBIT seen rising to Rs 9,787 crore from Rs 9,048 crore and EBIT margin expanding to 24.9 percent from 23.6 percent. Margins are likely to rebound by 130 bps after 150 bps margin compression in Q1. This will be led by growth, higher utilization and negligible supply-side impact.
Meanwhile, the TCS board will also consider a share buyback proposal. Investors will track the quantum of the buyback. In 2018, the company had undertaken a share buyback programme worth up to Rs 16,000 crore.
Going ahead, investors will assess the recovery strength during the second half of FY21 and in FY22. The demand trends across verticals, the profile of order booking and deal pipeline will also be closely watched.

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