TCS expected to post higher revenue and margins led by a streak of deal wins over the last three months

• Tata Consultancy Services (TCS) will kick off the earnings season with its second-quarter results on October 7.
• The Indian IT services behemoth is expected to post revenue growth and better margins on the back of at least ten deal wins over the last three months.
• Commentary on wage hires, new hiring and how the 25/25 work from home model is impacting the company’s financials will be crucial to watch.

Tata Consultancy Services (TCS) became the second Indian company to cross the ₹10 lakh crore barrier yesterday as it gears up to announce its quarterly earnings on October 7.

The Indian IT services behemoth share price jumped 14.82% over the last one month as IT stocks rallied after HCL Tech’s mid-quarter update. Yesterday’s record-high came after TCS shared its plans to consider buyback of shares during the board of directors meeting tomorrow.

Analysts are optimistic that the TCS will post at least 2.6% revenue growth after its streak of deal win announcements over the last three months — a refreshing change from the 6.3% dip in revenue that was seen in the prior quarter along with profit in the red by as much as 13%.

TCS new deal wins in the second quarter:

“The deal pipeline continues to be strong, led by traction in client engagement, which is up 3x vs pre-COVID levels,” said Japanese brokerage firm Nomura in its report.

The 10 new deal wins show improvement in demand across vertices and lay the path for better translation of deal wins to revenue. It also indicates that the supply-side issues of Q1 are now subsiding.

What’s next?
According to Edelweiss Research, TCS, being a market leader, is likely to be a key beneficiary of the businesses looking to transform, more cloud adoption, and digital adoption. “We also believe TCS will call out the current pandemic as a key catalyst for the third wave of outsourcing, triggering structural high growth for the industry,” said the report.

The Indian IT services giant can capitalise on the momentum of new deals coming its way with better cost control and efficient execution. However, any commentary on wage hikes, new hiring or how the 25/25 model impacts its finances will be crucial as per Nomura.

Last quarter, TCS CEO Rajesh Gopinathan indicated that the company is likely to open up its doors to lateral hiring. The on-boarding of freshers was still in progress, going slower than usual due to the coronavirus pandemic and training centres being shut.

TCS Q2 Earnings Preview

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