Though revenue growth in FY19 will be aided by bunching up of platform centric deal wins, TCS believes double digit growth is sustainable in FY20
TCS delivered revenue growth of 11.5% Y-o-Y in CC terms in Q2FY19 and we estimate it to deliver revenue growth of 10.5% in CC terms in FY19. Though revenue growth in FY19 will be aided by bunching up of platform centric deal wins, TCS believes double digit growth is sustainable in FY20 even in the absence of similar deal wins given structural turnaround in BFSI and Retail/CPG verticals, which cumulatively represent 48% of revenues.
We believe part of the revenue gap on account of absence of platform deals or efficiency pass- throughs would be offset by structural shift towards core modernisation/digital engineering which is expected to be pervasive across industries. That said, TCS believes sensitivity of the business to macroeconomic environment is greater today than in the past given the discretionary nature of digital engagements and any material deceleration in global macro remains the key risk to growth.
Though revenue growth in the BFSI vertical is expected to accelerate from 6.1% YoY in CC terms reported in Q2FY19, it is too early to project a return to consistent double-digit growth in the segment. Though client specific issues in BFSI are largely behind, recovery is still not uniform across all clients which impedes visibility on double-digit growth.
Automotive segment within manufacturing is the only vertical seeing some stress on spends with most other segments expected to post robust growth in the near-term. Impact of lower crude prices on the E&U segment is likely to be limited as TCS has a larger exposure to utilities than O&G with growth being stronger in the former segment as well.
In contrast to peers, growth in the technology & services segment has been muted at 5.8% YoY in CC terms in Q2FY19. However, the weakness is driven more by the semiconductor and telecom sub-segments with ISVs doing better. Employee cost in the US including sub-contractors has remained stable in the recent quarters. Also, since TCS has evolved to sell “solutions” as against “skills” like some of its peers do, its ability to right size resourcing (i.e., manage offshoring proportion and onsite pyramid) is better than peers.