Analysts express cautious optimism on TCS’ growth trajectoryIntro: BSNL deal ramp-up generated revenue but key verticals remain weak Padmini DhruvarajBengaluru, July 12After a better-than-expected quarter one performance by Tata Consultancy Services, analysts broadly expressed optimism about the company’s future performance. However, they also cautioned about the long-term sustainability of this growth. The reservation was on due to the fact that growth was driven by the BSNL deal ramp-up, with verticals in key markets such as communications and retail continuing to remain weak
The company’s share price closed up 6.6% at Rs 4,184.90 on Friday. Jefferies pointed to TCS’s resurgence in crucial industries and markets as a key factor in its improved outlook. Meanwhile, Citi and Nuvama Institutional Equities acknowledged increases in specific areas, though they expressed some reservations about the long-term sustainability of this growth.”Management sounded positive as they see a recovery in US-BFS and bottoming out of the retail vertical,” Nuvama said.Kotak Institutional Equities also recognised a revenue beat, largely driven by the BSNL deal. “Muted TCV and growth in key market segments indicate things are not rosy yet,” Kotak stated.
Meanwhile, ICICI Securities saw positive signs, with the company performing better than expected in key verticals like manufacturing. The brokerage firm saw cost optimisation and ongoing client interest in emerging technologies as potential growth drivers.”While growth was driven by the BSNL deal ramp-up, verticals in key markets such as communications and retail continued to be weak,” Motilal Oswal Financial Services said. Nomura took a neutral stance, suggesting minimal room for further reduction in subcontractor expenses and attrition.
On its part, Emkay Global was more cautious, pointing out the management’s hesitation to comment on the sustainability of growth amidst macroeconomic uncertainties. TCS on Thursday reported a 2.3% sequential growth in its consolidated revenue to Rs 62,613 crore, with the CEO, K Krithivasan, expressing satisfaction with the company’s all-round growth. Despite a fall in operating margin and net profit due to wage hikes, the company’s broad performance metrics remained strong.”On the wage increments, the overall impact is in line with our past actions,” said Samir Seksaria, CFO of TCS.
The decline in deal wins was seen as a timing issue rather than a reduction in market opportunity, Krithivasan said.While North America and BFSI saw some declines, TCS experienced significant revenue growth in the UK and India, benefiting from the BSNL deal. The revenue from India notably rose by 61.8% year-on-year.Despite current market volatility, TCS remains committed to its 26-28% aspirational operating margin band for FY25. “It’s still early to call whether the growth momentum is sustainable,” Krithivasan said, reflecting a cautiously optimistic outlook for the future.