TCS kicks off Q1 earnings season today; here's what to watch out for

Tata Consultancy Services (TCS), country's largest software services firm will report its June quarter earnings for financial year 2018-19 later today, kicking off the Q1FY19 results season. After a strong March quarter, the IT giant is expected to report another quarter of outperformance as Rajesh Gopinathan, CEO and Managing Director, TCS takes centrestage to lay out Q1 report card post market hours. 

Going by brokerages views, TCS will report the best improvement in FY19 revenue growth amongst large-caps. Here is what brokerages expect from Mumbai-based IT company's Q1 FY19 results:

IDBI Capital: We forecast CC revenue growth of 3.2 per cent QoQ and a cross-currency headwind of nearly 140 bps, and a decline in EBIT margin by ~115bps QoQ impacted by salary increase partly offset by rupee depreciation.
Would watch for: 1) Demand outlook for CY18 budgets, especially for BFS, 2) Ramp-up of large-deals; 3) Outlook on EBIT margin amid INR depreciation, 4) Large deal wins and growth in large clients; and 5) Growth in Digital services and commentary on ramp-up of recent deals.

Emkay Global: We expect 3.7% qoq CC revenue growth and 100bps qoq cross-currency headwinds, leading to a 2.7% qoq growth in USD terms. INR depreciation (~400bps qoq) will lead to a 6.6% qoq growth in reported terms. Margin is expected to
decline by ~140bps qoq on account of wage hikes, visa charges and new deal ramp-up costs. Profitability impact is after assuming ~100bps FX tailwinds sequentially. Reported profit is expected to remain flattish largely on weaker OPM
and lower other income. Key aspects to watch out for: (1) Demand outlook (especially in large US BFS clients) (2) OPM levers going forward, if any (3) Commentary on Digital.

ICICI Securities: Constant currency revenues are expected to grow 3.5% QoQ with a drag of 100 bps to dollar growth. US$ revenue is expected to grow 2.5% to $5,095.2 million led by ramp up of recently won deals and increasing contribution of digital in overall revenue pie. Rupee revenues may grow 6.4% QoQ to | 34,142.9 crore. EBIT margins may decline 80 bps QoQ to 24.6% on account of wage hike, visa cost partly offset by rupee depreciation and operational efficiency. Investor interest: Demand trajectory for FY19E across BFSI and retail, margin enhancement levers, deal pipeline and traction in digital business.

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Motilal Oswal Securities: Barring BFS and Retail, all segments for TCS were growing in healthy single-digits or double-digits. On the back of revival in Retail and a slew of large deal announcements, we expect 3.3% QoQ CC growth in 1QFY19. This signifies an acceleration compared to the 2% QoQ CC growth witnessed in 4QFY18. Our EBIT margin estimate for 1Q stands at 24.7% (-70bp QoQ). The impact of wage hikes is likely to be partly offset by INR depreciation. Our PAT estimate stands at INR71.1b (+3% QoQ), led by sequential growth in operating parameters. The stock trades at 22.8x FY19E and 20.1x FY20E earnings. Neutral.

Here are the key issues to watch for according to MOSL:

• Outlook on BFS and likely recovery in the vertical
• Traction in new initiatives (Digital/automation/solutions)
• Margin expectations for the next year, given multiple headwinds