India's largest software services provider Tata Consultancy Services Ltd. is expected to post muted growth in the three months ended March 2017 even as investors look for cues to assess the possible impact of visa curbs on its margins and profits.
The company's financial services and insurance (BFSI) vertical, which contributes nearly 40 percent of its revenue, may see tepid growth, while the performance of its U.K. arm Diligenta Ltd. is likely to improve, according to HDFC Securities. Margins are likely to remain flat as a sharp appreciation in the rupee will be offset by improvement in productivity and the company's hedging policies.
The company has beaten consensus expectations for the past eight quarters despite often reporting subdued growth. Analysts have been conservative in estimating its quarterly earnings amid a slowdown in the information technology sector.
Also Read: TCS Gets Shareholders' Nod For Biggest Buyback In India's History
Earnings Expectations
Here's what Bloomberg consensus estimates project…
- 0.5 percent growth in revenue over the October-December period to Rs 29,893 crore.
- Kotak Institutional Equities, Jefferies India, Ambit Capital and IDFC expect dollar revenue of $4,450-4,475 million, implying 1.5-2 percent sequential growth.
- The company's earnings before interest and taxes (EBIT) margins are expected to remain flat at 26 percent with net profit likely to decline by 2.3 percent sequentially to Rs 6,654 crore.
What To Watch
Outlook On Client Budgets, Spending
TCS gets over 50 percent of its revenues from North America and the commentary on client budgets will be crucial after market research company Gartner projected 2.3 percent growth in IT services spends in the U.S. for 2017.
Plans To Counter Change In U.S. Visa Norms
Investors will watch for the management's assessment of impact of change in U.S. H-1B visa norms and the potential impact it can have on margins and profitability. The management's strategy to counter changes in operations will be key.
Updates On Subsidiary Performances
Commentary on growth in digital landscape, pricing trends in various geographies and updates on performance of subsidiaries abroad will also be keenly watched.
How Stock Moves After Earnings
The company may have posted a net profit, adjusted for exceptional items, ahead of consensus expectations in the past eight quarters, but has given negative returns seven out of eight times on the day following the earnings announcement.
(Expectations have been compiled from reports by Kotak Institutional Equities, Jefferies India, Ambit Capital, Edelweiss Securities, Phillip Capital, and Religare Institutional Research, HDFC Securities)
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