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TCS Q4 revenue seen flat at $3.94bn; margin hit likely

The News International Team

All eyes will be on IT bellwether TCS when it reports quarterly earnings declaration Thursday evening, in which investors will be keen to ascertain whether a stumble on revenue growth in the past two quarters was an aberration or a sign the firm’s high growth pace may be secularly slowing down due to size.

By being the first major company to report fourth-quarter numbers, TCS will for the first time also don the mantle of being the company that “unofficially kick-starts” the earnings season. For many years now till the last quarter, this job was done by Infosys, the company TCS has raced past by on revenues, valuation and brand metrics in the past few years (the former has said it would announce results on April 24).

For TCS, analysts will be keenly eyeing whether the company will be able to even meet the now-muted expectations on revenue growth and how much of a hit margins take due to forex movements and seasonality impact.

A CNBC-TV18 poll of analysts has forecast the firm’s dollar revenue to grow 0.2 percent to USD 3940 million versus USD 3931 million in the previous quarter, while rupee revenue is seen declining 0.1 percent, from Rs 24,501 crore to Rs 24,456 crore.

Operating profit (earnings before interest and taxes) is seen falling 1.2 percent to Rs 6,540 crore while net profit may fall 0.6 percent to Rs 5,410 crore. The fall in profit may result in TCS’s EBIT margin coming off from 27.04 percent to 26.74 percent.

The TCS management, at a recent analyst meet, had indicated that its top line and bottom line may be impacted by forex movements: during the quarter, the US dollar rose 4.3 percent, 11 percent, 8.6 percent and 3.7 percent versus the pound, euro, aussie dollar and yen, respectively.

Cross currency headwinds played into TCS’s margins in the third quarter as well (2.5 percent on revenues). In fact, brokerage firm CLSA recently said it expects cross currency headwinds to continue to impact the firm’s FY16 revenues by about 4 percent too.

If the numbers meet analysts’ expectations, TCS’s dollar revenues will have grown 15.26 percent for the full fiscal year 2014-15, higher than the industry’s expected growth of 13-15 percent (or that of in-the-midst-of-turnaround peer Infosys, expected in single digits) but lower than the 16.2 percent it clocked in FY2013-14.

This would be despite the management saying last year that FY15 would be better than FY14.

On the earnings call, investors would also eye management commentary on expected growth trends in FY16 (there won’t be any guidance), as well as how its key verticals — such as BFSI, energy, telecom or retail — and geographies are doing.

A miss on Q4 earnings or muted commentary going forward will likely take an immediate impact on the TCS stock, which at Rs 2618 (Wednesday closing) trades at a relatively-expensive price-to-earnings multiple of 21.33, basis expected FY15 earnings-per-share of Rs 123.

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