BackTCS likely to report muted earnings growth in March quarter
Sluggish spending by clients in January and February may hit earnings, chief financial officer Rajesh Gopinath says
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Mumbai: Tata Consultancy Services Ltd (TCS), India’s top software services exporter, is likely to report muted earnings growth for the quarter ending 31 March due to sluggish spending by clients in January and February, chief financial officer Rajesh Gopinath said on Thursday.
A slowdown in demand for information technology (IT) services from sectors such as telecom, insurance and energy, and currency volatility are also likely to have an impact on March quarter revenue, Gopinath told analysts at a conference.
“While the fourth quarter earnings are likely to be in line with the trend last year, we see a continued de-growth in Diligenta, and slowdown in the insurance and energy verticals," said Gopinath.
Diligenta is the life insurance and pension business process outsourcing subsidiary of TCS.
Gopinath said TCS is witnessing a recovery in the retail sector while manufacturing and hi-tech companies are also expected to recover from the last quarter’s muted growth.
Volatility in January and February is expected to have a negative 275 basis points impact in constant currency terms to rupee revenue, and a negative 200 basis points impact in constant currency terms to dollar revenue due to headwinds in Europe, Gopinath said. One basis point is one-hundredth of a percentage point.
This would have a negative 40 basis points impact in constant currency terms on rupee EBIT (earnings before interest and tax) margins, Gopinath said.
“The 200 basis points impact in dollar revenue terms was higher than the 100 basis points impact we were expecting, but this is probably due to a higher impact from currency volatility in Europe," said Ankita Somani, a research analyst at MSFL Research, part of the Marwadi Institutional Business Group.
“The management also mentioned a slowdown in client spending in January and February," Somani said, adding that the brokerage expects TCS to post higher than average industry growth in the financial year starting on 1 April.
Gopinath said TCS is expected to perform better in Europe where it has signed several new deals last year. Its business in Japan is also expected to perform better than in the last quarter, despite continued currency volatility.
The company’s India revenue is expected to be flat or marginally positive in the absence of significant growth.
Gopinath said the company was hoping for an acceleration in client spending in the rest of the year. Detailed management commentary on the outlook for 2015 would be shared by TCS when it announces fourth quarter and full year earnings in April, he said.
In the three months ended 31 December, TCS’ net profit trailed analyst estimates amid weak services demand.
The company earned a profit of ₹ 5,310 crore on revenue of ₹ 245,00 crore.
On Thursday, shares of TCS ended down 1.72% at ₹ 2,696.35 per share while the benchmark Sensex closed up 0.23% to 29,448.95 points.
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