TCS’s December quarter results will disappoint investors again1 min read . Updated: 12 Jan 2018, 08:01 AM IST
TCS's key banking, financial services and insurance segment pulled down overall growth
Tata Consultancy Services Ltd’s (TCS’s) year-on-year revenue growth fell to just 6.2% in the December 2017 quarter, its lowest in more than three years. Growth has been sluggish for a while now, and the last quarter was little different, except that some growth in some segments picked up.
Most importantly, the key banking, financial services and insurance (BFSI) segment pulled down overall growth. Revenues accruing from these industries fell 1.5% sequentially and were flat year-on-year.
The glass-half-full view is that some other segments are doing extremely well, for overall growth to settle at over 6%. But investors should be worried. BFSI accounts for about a third of revenues, and there’s no sight of a recovery yet.
“Banking continues to be an area where we are in a wait-and-watch mode; it is still a couple of quarters away from seeing a meaningful recovery," Rajesh Gopinathan, chief executive of TCS, said at a press conference. Analysts are particularly worried about the lack of growth in the segment, with questions on the segment forming the majority of queries in a post-results call with the company’s management.
What’s disconcerting for them is that Accenture Plc has reported higher-than-company-average growth in the BFSI segment in recent quarters. While TCS said it has defended market share in the BFSI segment, the disparate growth of the two companies in this segment seems to suggest otherwise.
Meanwhile, there were pockets of strength, which helped overall growth. Revenues from the retail industry bounced back last quarter, for instance, and troubled segments such as Diligenta and the company’s Japanese acquisition are on a good trajectory, said TCS.
In fact, reported revenues were more or less in line with the Street’s estimates, although it must be noted that expectations were running extremely low. After all, with sequential growth expectations of 1-1.5%, analysts weren’t expecting much—revenues grew 1.3% in constant currency terms sequentially. In the year-ago December quarter, growth had stood at 2%.
In this backdrop of sluggish growth, it’s interesting that TCS shares have done fairly well in the run-up to its results announcement. The shares have risen 5% in the past week, and valuations are at a significant premium. Investors may have set themselves up for disappointment once again.