Considering seasonal weakness due to furloughs and muted outlook for banking financial services and retail, Tata Consultancy Services is expected to report muted revenue growth for the quarter ended on December 31, 2019, with sequential growth of dollar revenue at 1.5 percent and constant currency revenue growth at 1 percent, according to a CNBC-TV18 poll.
TCS will release its Q3FY20 earnings on January 17.
Margins sequentially might do better due to favourable forex from depreciation in the Indian rupee. The CNBC TV18 poll expected EBIT margins to rise by 50 bps at 24.5 percent, driving a 2.2 percent increase in sequential profit figures to Rs 8,224 crore.
Q3FY20e QOQ estimates * Dollar revenue up 1.45 percent at $5,597 million against $5,517 million. * Rupee revenue up 2.3 percent at Rs 39,870 crore against Rs 38,977 crore. * Earnings Before Interest and Taxes (EBIT) at Rs 9,782 crore against Rs 9,361 crore. * Earnings Before Interest and Taxes (EBIT) at 24.5 percent against 24 percent. * Profit after tax (PAT) up 2.2 percent at Rs 8,224 crore against Rs 8,042 crore.
Revenue growth for TCS missed estimates in the last 2 quarters and in this quarter, given the pockets of weakness in BFS and retail, we expect growth to moderate both QoQ and YoY.
Key things to watch out for * The third quarter is seasonally weak. Financial services and insurance (BFSI) and the retail outlook look muted. * Dollar revenue growth is seen at 1.5 percent and constant currency growth at 1 percent (Infosys constant currency at 1 percent). * The company has missed revenue estimates for the last two quarters. * Revenue growth to moderate compared to prior December quarters. TCS Q2 Review Revenue, margins and profits are lower than estimates. Dollar revenue growth at 0.6 percent against an estimate of 1.8 percent, EBIT at 24 percent against an estimate of 25 percent, PAT misses an estimate by Rs 300 crore to come at Rs 8,042 crore. Misses Constant currency YOY growth slows down to 8.4 percent after four quarters of double-digit growth (This means FY20 growth will be in high single digits vs 11.4 percent in FY19). Margins at a nine quarter low, decline by 15 bps to 24 percent as the company invested in building capacity. Growth rates slow down in Digital (from 40 percent to 28 percent ), BFSI (From 9.2 percent to 8 percent) and retail (8.4 percent to 4.8 percent). BFSI weakness in large banks in North America, UK and capital markets. Retail recovery has been pushed forward. Positives Orderbook at six-quarter high TCV at $6.4 billion (BFSI at 2.2 billion is at an all-time high, retail at $800 million and North America at $3.4 billion). Announces total dividend at Rs 45 per share inclusive special dividend of Rs 40 per share. Special dividend of Rs 40 = Rs 15,000 crore of payout so that means buyback is unlikely. TCS Commentary in Q2 from Concall
Retail weakness is broad-based as it is coming across most markets. We have seen some amount of slowdown in order decision-making and that caught us by surprise. Especially in some of the more innovation-led, produced kind of deal structures, we have seen some amount of delay. We will have to wait and see how this plays out. Also, the holiday season that is coming up will be a crucial determinant of where retail confidence is. So, the next few months will be critical for the industry from at least a medium-term perspective.
BFSI: Seen weakness in large banks in Europe and capital markets in the US are primarily where the weakness is coming from and that does not change. Seen significant strength especially in insurance, regional banks and there are smaller banks in North America.