At its quarterly business update meet, the TCS management said the revenue growth in the March quarter will be in line with Q4FY14 (1.9% q-o-q, constant-currency terms).
This is lower than our current estimates of 4.0% q-o-q. Ebit margin would be negatively impacted by cross-currency headwinds (40 bps) and higher proportion of laterals in new hires. The management commentary implies a likely cut of 2-4% to our FY16 EPS estimates, but we see no risk to TCS maintaining industry-leading revenue growth over FY15-17.
It’s competitive positioning, led by large scale in fastgrowing segments, capable management, good acquisition track record make it the best on our CAPOM framework. The stock trades at 22X one-year forward eps; we expect marginal upgrades to our long-term growth estimates from continued strong traction in new segments (digital) and new markets (Continental Europe, Japan).
The management indicated that January and February had been weak, in line with the pattern seen last year, but worse than its expectation of some revenue growth acceleration.
In Q4FY14, TCS had delivered 1.9% q-o-q growth in constant-currency terms. Cross-currency headwinds are likely to shave off 200 bps, implying that revenues would be flat in dollar terms. Key headwinds for Ebit margin are cross-currency impact and higher employee costs due to higher proportion of laterals in new hires in this quarter.
By Ambit Capital