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TCS Q4 earnings preview: Here's what to expect?

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TCS Q4 earnings preview: Here's what to expect?


Tata Consultancy Services (TCS) will be releasing its March quarter's number on Thursday.

After weak earnings from Wipro , investors are expecting a weak quarter from TCS as well. The dollar revenue growth is expected to remain flat on a sequential basis at $5580 mn. Analysts are expecting a 00 bps negative impact in Q4 on account of COVID-19 lockdown.

Revenue in rupee terms, however, is expected to jump by 1.5 percent sequentially to Rs 10,100 crore owing to rupee tailwind. Margins are expected to remain QoQ as impact of lower billing and cross currency headwinds will be partially offset by rupee depreciation lower variable compensation payout.
Constant currency growth is being pegged at 0.5 percent QoQ for Q4 while on an annualised basis cc growth in 4Q is expected around 5 percent YoY. This would be a sharp slowdown as compared to 12.70 percent CC YoY growth reported in Q4 FY19.
For FY20, street is factoring in a sub-8 percent YoY cc growth which would fall shy of the double digit growth targets that street was building up at the start of the year. ​Deal win momentum however will continue to be strong led by ~$2bn deal with Phoenix group and $1.5bn deal with Walgreen’s Boots Alliance .
More importantly, after very bleak commentary from Wipro , investors would watch out for TCS management discussion to get more color on the Impact of COVID-19 on IT budgets and demand scenario across verticals specially BFS/Retail/Manufacturing/Healthcare.
BFSI which contributes over 30 percent of teh revenue had indicated softer demand due to structural concerns at store retailers and weaker spending at large banks in the 3Q as well. Separately , management comment on deal discussions so far, pricing & client behaviour wrt discounts/delays in payments would also be keenly watched.
While most of the analysts are expecting recovery from H2Fy21, TCS management comments on the same would be critical.
Q4FY20 (QoQ)
-$ REVENUE seen (RD) at $5,580 m vs $5,586 m
-REVENUE seen (GU)1.5% at `40,440 cr vs `39,854 cr
-EBIT seen (GU)1.5% at `10,100 cr vs `9,974 cr
-EBIT MARGIN seen (RD) at 24.9% vs 25%
-PROFIT AFTER TAX seen (GU)1.1% at `8,200 cr vs `8,118 cr
Q4FY20: Key Expectations
-$ Revenue growth seen flat
-Constant Currency growth seen at 0.5%
-Expect 1% hit from missed billings and lockdowns
-Margins seen largely flat
-Lower billing impact will be offset by ` depreciation
-Constant currency headwinds seen
-Lower variable compensation payout expected
-Lower other income due to lower forex gains to limit profit growth
-Deal momentum led by Phoenix Group deal and Walgreens Boots Alliance
Q4FY20: Commentary To Watch
-COVID-19 impact on IT spend
-BFSI, retail outlook and guidance
-Pricing and delayed payments
-Capital allocation policy
-Recovery expectation
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