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earnings | IST

Earnings preview: TCS Q2 results today; street expects 4.1% QoQ dollar revenue growth

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The Street is expecting TCS to post revenue growth of about 4-4.5 percent in dollar terms on a year-on-year basis.

Seasonal strength, as well as firm demand, is expected to keep Tata Consultancy Services' (TCS) growth numbers high. The Street is expecting revenue growth of about 4-4.5 percent in dollar terms on a year-on-year basis. The number is seen closer to 18 percent in terms of topline growth.
The TCS management's commentary was very strong last month. The IT major has been talking about the strong demand environment to sustain over the medium term. It has mentioned broad-based demand across verticals. Margins are expected to rise 50 bps for TCS at 26 percent, driving a profit jump of eight percent.
What will the Street focus on?
The focus will be on the fact that TCS has for the last 2-3 quarters not won any large deals. Investors will keenly look for some clarity on why that is happening, and how it should be read.
Are there any supply-side challenges for TCS? If so, how long will they last? What are the attrition numbers now looking like, at a time when hiring has been at record levels for TCS for the last two quarters? Is that something that is going to continue even in the coming quarters?
In light of supply-side challenges, what will the margins look like for TCS? Can the company sustain its aspirational 26-28 percent margin guidance that it has been holding on to?
Talking about cost-side pressure? Is there a possibility that IT companies, as an industry, can pass it on by way of higher prices? The Street expects the demand environment to remain strong.
For TCS, valuations have always been at a premium, with the stock trading at 36 times FY22 earnings. It is down this year as well as following last year's dip.
Watch the accompanying video of CNBC-TV18’s Reema Tendulkar for more details.