ADVERTISEMENT

TCS management optimistic on IT demand, shares gain

Shares in Tata Consultancy Services gained as much as 2.2 per cent after analysts cited the company executives as saying that although October-December revenue would be impacted by seasonal weakness, it was broadly in line with seasonal trends.

Tata Consultancy is also positive about the demand environment, according to analysts who attended a briefing by executives including the software service exporter's chief financial officer Rajesh Gopinathan.

Here are some key highlights:

a) FY14 will be a better year than FY13 and second half of FY14 will be weaker than the first half.

b) December quarter will be seasonally weaker on account of: 1) lower number of working days and 2) furloughs in multiple industries (especially retail) impacting revenues.

c) Consulting will be weak, while among geographies, India will be weak as there has been a slowdown in spending ahead of the upcoming elections.

d) The US and UK will also be weak, however Europe, APAC and Latin America will do better than company average. The weakness in regions other than India is in line with typical seasonality, according to TCS.

e) Budgeting cycle is happening in a more positive environment this year and demand environment continues to be positive.

f) Demand uptick is being driven by smaller deals in US: in Europe its large deal driven.

"TCS remains confident of a solid demand environment. We believe TCS can sustain the gap in revenue growth and margins versus the industry," said Kotak Institutional Equities in a report on Tuesday.

Nomura retained its buy call on TCS with a target price of Rs 2,440.

"TCS' indications on 3QFY14F revenue growth were slightly muted vs our expectations - but that was largely on account of the weakness in India (which is typically lumpy in nature) and hence we are not concerned," Nomura said.

The brokerage expects TCS to be the top performer in revenue growth among tier-1 Indian IT, for FY15F too as it is best placed to benefit from a demand upturn given strengths in both cost efficiency and discretionary segments.

Nomura prefers TCS to Infosys given its recent underperformance against Infosys over the last 3 months, greater predictability of growth (no portfolio or sales issues) and better earnings per share growth expectations over FY13-15F (26 per cent CAGR at TCS as against 14 per cent at Infosys).

(With inputs from Reuters)