In a first in 6 years, TCS revenue set to fall short of $1 bn target

Updated: January 19, 2017 7:06 AM

India’s largest IT services exporter Tata Consultancy Services (TCS), which has consistently added over a billion dollars in incremental revenues over the last six fiscals starting from FY11, may just fall short of achieving this target for the current financial year going by its recent performance and other indicators.

tcsTCS has consistently added a billion dollar in incremental revenues starting from FY11.

India’s largest IT services exporter Tata Consultancy Services (TCS), which has consistently added over a billion dollars in incremental revenues over the last six fiscals starting from FY11, may just fall short of achieving this target for the current financial year going by its recent performance and other indicators.

TCS, for the first nine months of FY17 reported a consolidated revenue of $13.123 billion and needs to achieve another $4.422 million in the fourth quarter to reach the benchmark of $1 billion in incremental revenue. To reach this mark in the fourth quarter, TCS will have to clock a sequential growth of around 0.8%, which can be challenging in the given environment. For the third quarter of the current fiscal, TCS recorded a sequential growth of 0.3% to touch a revenue of $4.387 billion which was the same level what it registered in the second quarter.

BNP Paribas, the brokerage house in recent note has estimated that TCS is most likely to record a sequential growth of 0.5% during the fourth quarter of the current fiscal.

TCS has consistently added a billion dollar in incremental revenues starting from FY11. In fact one particular fiscal that is FY15 it added $2.012 billion in incremental revenue which has been its highest.

The only other company which has matched TCS in adding over a billion dollars in incremental revenue has been the Nasdaq listed IT services major – Cognizant. The company which has a large employee presence in India has been achieving this benchmark since 2010 calendar year.

It is likely that Cognizant may maintain this trend of adding $1 billion in incremental revenue for 2016 as it has provided a guidance of $13.47 billion to $13.53 billion while it closed 2015 with a topline of $12.42 billion.

The performance of TCS should also be seen in the context of changed dynamics in the global technology industry where there is heightened pricing pressure for conventional IT service deals and smaller contracts in new areas such as digital.

Nasscom, the IT industry’s trade body has already revised downwards the annual revenue growth guidance to 8-10% from the earlier level of 10-12%.

This dampened sentiment for the industry could also mean a single digit growth rate once again for the TCS by the end of FY17 while it closed FY16 with a growth rate of 7.1%.

Besides, the growth challenges for TCS there has also been a change in leadership for the IT major. The CEO of TCS, N Chandrasekaran has now been appointed the chairman of Tata Sons and in his place, the incumbent CFO Rajesh Gopinathan will take over the role.

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It remains to be seen whether TCS will be able regain its earlier pace of growth under the new leadership. Under the leadership of Chandrasekaran, TCS recorded very rapid growth and also became the first Indian company to cross the revenue of $10 billion.Given the pace of its growth, TCS has also outpaced competition in terms revenue size and profitability.

By, P P Thimmaya

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