TCS - Q2FY13 Result Preview - Way2Wealth

How The Quarter Looks Like?

Revenue Momentum Will Continue; Volume Growth Will Slow Down

TCS' topline in Q2FY13 is expected to register 3.57% of sequential growth to reach $2825mn. Although, volume growth would be lower than the previous quarter as current quarter would not have large one-offs like the 'FriendsLife' deal. We expect, TCS would report 4.5% of volume growth in the current quarter as ramp up of past won deals would aid volumes.

Margin Expected To Be Under Pressure Sequentially

EBIT margin in Q2FY13 is expected to decline below management's aspiration of 27.5% due to continuous capacity build up, fresher joining and ramp up of lower margin projects in APAC and India. Importantly, management alluded to a few deal wins where the company has leveraged a weaker INR to give more favourable rates to its clients. Over the past few days, post the announcement of QE3 and reforms in India, INR has started to appreciate. In that context, if INR appreciates further, deals signed in a weaker INR scenario may face a tougher margin profile going forward.

Management Is Experiencing Stable Demand Environment

TCS management has indicated about stable demand environment and they have not seen any deal cancellation or marked slowdown in decision making. The deal pipeline is healthy and the company is seeing consistent growth across major geographies (the US, UK and Europe) while APAC and India have shown strong deal wins recently. Among verticals, retail, manufacturing, insurance and hi-tech are doing well while telecom remains weak. Spending patter this year would normal and hence budget flush towards end of the year seems unlikely. Discretionary spends are also happening with clients investing in new technologies.

Source : Equity Bulls

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