BENGALURU: India’s largest IT services company Tata Consultancy Services (TCS) Ltd will kick-off the fourth quarter earning season on Monday. Given the gradual uptick in business and demand environment, investors will monitor TCS's revenue growth which usually sets the tone for peers in the industry. While the IT major does not provide a revenue growth guidance, management commentary on business outlook will be closely monitored.

Mint highlights five things to watch out for in TCS’s Q4 results that will be declared today, after market hours.

Analysts expect tier-I technology companies to report strong growth led by TCS. “We expect strong constant currency revenue growth of 4.2% to be driven by ramp up of Postbank and Prudential Financial deals. These deals will likely contribute about 2% to March 2021 quarter revenues," Kotak Institutional Equities said in a pre-earnings note.

Motilal Oswal also expects TCS to report strong sequential dollar revenue growth of 4% led by Postbank and Prudential deal wins.

In general, IT companies’ margins are expected to shrink due to the wage hikes offered. However, TCS absorbed wage revision in the previous quarter and is likely to report an expansion in its EBIT margin. “On profitability, we expect EBIT margin to increase sequentially powered by leverage from growth and increase in utilization rates. We note that TCS absorbed impact of wage revision in December 2020 quarter and does not have any incremental headwinds in March 2021 quarter," Kotak Institutional Equities said.

Large deals

Investors will monitor how quickly TCS is able to ramp up large deals in the coming quarters. The company has won some significant digital deals from Vodafone, ThreeUK, and Skanska, recently. Large deals trends such as closure timelines and profitability metrics will also be monitored.

Growth in key verticals

Growth in banking, financial services & insurance (BFSI) and retail verticals, on which TCS has a relatively higher dependence than peers, will be a key monitorable. BFSI is the largest vertical for TCS and contributes about 31% to the company’s total revenues. Retail is the second most important vertical contributing about 14% to the total revenues. TCS is eyeing strong growth in both these verticals which are undergoing digital transformation at different levels.

Recently, TCS made two acquisitions – Postbank Systems AG and Pramerica Systems Ireland – to strengthen its play in the BFSI vertical.

Management commentary on outlook

While TCS does not give a formal revenue growth guidance, management commentary on outlook will be keenly watched. “Management may express confidence on achieving comfortable double-digit growth in FY22 and sustained profitability," Kotak Institutional Equities said.

Overall, the Street is upbeat about the sector after a decade-best third quarter earnings. “The pandemic has evidently accelerated the digital transformation agenda and key lead indicators remain positive," HDFC Securities said.