Tata Consultancy will retain lead over peers, predict analysts

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SummaryDespite seeing slow volume growth and a negative impact on margins during the October-December period, India’s largest IT services firm Tata Consultancy Services would retain its lead over peers, leading brokerage houses noted on Tuesday after hearing out the company management over a customary analysts meet.

Despite seeing slow volume growth and a negative impact on margins during the October-December period, India’s largest IT services firm Tata Consultancy Services (TCS) would retain its lead over peers, leading brokerage houses noted on Tuesday after hearing out the company management over a customary analysts meet.

“The company exuded confidence for FY14 growth due to a strong pipeline, ramp up in deal wins and positive client discussions on discretionary spending. We believe that this performance should support TCS’ lead over peers,” Barclays said in a report released on Tuesday.

At the analyst briefing, the IT firm’s CFO S Mahalingam and investor relations head Kedar Shirali noted that the company is on track to meet its full-year forecast for FY13 and does not see any major project cancellations or change in customers’ decision making and budgets. Angel Broking said TCS will post a 3-3.5% sequential volume growth during the October-December compared with 4.9% in Q2.

TCS pointed out that for the third-quarter ending December, performance is likely to be impacted by less number of working days and furloughs. “TCS maintained its earlier commentary of a slowdown in the second half of FY13 with the December quarter feeling the impact of some furloughs, hurricane Sandy and one less working day,” Barclays noted. Furloughs is a temporary unpaid leave of some employees due to special needs of a company. The third-quarter witnesses furloughs from hi-tech, manufacturing and telecom clients, but this time even banking and financial services saw a few instances of clients taking furloughs, said analysts.

During the analysts’ meet, TCS also indicated lower margins in Q3. “The management expects decline in margin due to lower working days, higher fresher intakes and forex movement. However, they reiterated their goal of 27% EBIT margin for FY13,” said Shashi Bhusan, IT analysts with Prabhudas and Lilladher. Operating margins were 26.8% in Q2 and 27.5% in Q1.

The company maintained its hiring targets for next year at 25,000 with no spillover of current year hires into next year. Among services and geographies, growth is mostly expected to be broad-based. Europe may lag slightly, majorly because of sluggish telecom vertical, noted Angel Broking.

Share of TCS was up 0.42% at R1,210.90 on the BSE on Tuesday.

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