TCS Q1 preview: Expect strong deal wins, sales growth & margin pressure

MUMBAI: (TCS) is likely to report another set of robust of revenue growth for June quarter, aided by conversion of deals in the previous quarter, strong seasonal client spending and gains in market share.

Analysts expect the country’s largest IT services firm to report nearly 5 per cent sequential growth in consolidated net sales at Rs 45,850 crore for the quarter ended June. The company’s consolidated net profit growth is likely to be muted at a little over 1 per cent at Rs 9,370 crore.

On a year-on-year basis, the city-based company’s consolidated profit may grow nearly 34 per cent and net sales may rise 20 per cent, owing to a small base in the year-ago quarter where earnings were impacted by the Covid-related lockdowns around the world.

The IT services giant will report June quarter earnings on Thursday.

All eyes will be on the company’s margin performance, or rather on how well the company manages its wage pressures on margins. Analysts expect the consolidated operating margin to shrink on a sequential basis by 70-160 basis points in the June quarter, reflecting the impact of the salary hikes undertaken by the company.

Indian IT services companies have been facing tremendous pressure to retain talent, as a surge in services demand has resulted in a war for talent in the sector, forcing companies to dish out wage hikes after wage hikes to retain personnel.

“TCS’ timely and consistent recruitment, robust supply-side engine and people practices will minimise margin impact from wage revisions. Note that EBIT margin will increase sharply from the Covid-hit June quarter of 2020,” brokerage firm Kotak Institutional Equities said in a note.

Besides the quarterly earnings, investors will be keen on the nature of commentary by the company management.

Brokerages said TCS’ commentary on deal momentum and deal wins during the quarter will offer cue on how the topline momentum may pan out in the coming quarters. Further, the management’s assessment of the operating margin scenario will be crucial given the need to retain talent through more wage hikes in coming quarters.

“We expect strong deal wins, massive order book, optimistic commentary and very strong hiring plans,” brokerage firm Edelweiss Securities said in a note.

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