Dollar appreciation impact
The dollar appreciated sequentially against the euro and the British pound by 1.4% and 1.8%, respectively, during the March quarter based on average rates.This would adversely affect realisations when the revenue of IT companies in the European currencies is converted to dollars for accounting purposes, thereby giving rise to cross currency headwinds. In rupee terms, the revenue of TCS may grow 1.3% to ₹64,777 crore and net profit by 1.5% to ₹12,571 crore, aided by weaker rupee against the dollar. The rupee depreciated by 2.5% sequentially against the dollar to ₹86.6.
“Subpar growth should persist in the March quarter as muted demand trends persist on account of weak discretionary spending and cautious behaviour by clients amid uncertain macros,” stated Emkay Global Financial Services in a sector preview report. The brokerage expects TCS to report 1.1% sequential decline in the dollar denominated revenue citing 60 basis points of impact due to cross currency fluctuations.
The company’s operating margin (EBIT margin) is likely to expand by 40-50 basis points from a quarter ago when it saw a margin of 24.5%. Factors such as a weaker rupee, higher operating efficiency and lower revenue contribution by the BSNL project-which has lower a margin profile compared to other projects-are expected to offset the impact of higher investment pertaining to artificial intelligence-related technologies and skill development thereby supporting profitability.All eyes on tariff impactApart from the usual factors such as hiring trend for the fiscal year, client budgets, and vertical specific demand trends, investors would be keen to know how TCS management perceives the spate of tariff-related decisions taken by the administration in the US, its biggest market.
IT stocks have been under pressure over the past few days following concerns that the ensuing tariff changes would impact the financial performance IT clients.
