TCS analysts' meet: Key takeaways

Here are the key takeaways of TCS' analyst meet on Friday, CNBC-TV18’s Reema Tendulkar reports.

• The key takeaway is that there has been a status quo in the demand environment ever post fourth quarter of FY12. So from mid-April to up until now there has been no improvement nor been there any deterioration in the global economic environment which impacts TCS per se. What their earlier stance was that it’s going to be a normal year which means H1 is going to be stronger than H2 continues to stand so they say the growth will remain front ended.

 

• The performance in June quarter is going to be better in March quarter which means the volume growth in June is going to be higher than March. Only they are likely to see a cross currency adverse impact of about 1.5 percentage points. So as a result to which what the street is estimating a 4.5% volume growth in the June quarter. However, there will be a cross currency impact as a result of which the constant currency revenue growth according to the street is likely to stand at about 3-3.5% for TCS in June quarter.

 

• TCS management has said that Q1 is going to be better than Q4. Growth is going to be front ended and it is still confident of beating NASSCOM industry guidance of about 11-14% in their dollar revenue growth. TCS is likely to do about 15-16% in terms of their dollar revenue growth.

Challenges

In the last quarter two problem areas had emerged for the entire IT space; one was the sluggishness in North America and second was BFSI. So with respect to BFSI which contributes about 44% to the revenues for TCS, it is expecting it to grow at a rate which is lower than the company average in particular. North America as well will grow at a rate which is lower than the company average.

With respect to verticals it is expecting pharma, healthcare, manufacturing, hi-tech and retail to grow at an average which is higher than the company average.

Margins

In Q1 margin is going to be impacted because of the wage hike.  Also there is a quarterly variable pay and as a result of which it’s going to be down in constant currency terms. 

However, the rupee has depreciated by close to about 10% in the quarter and that will benefit their margins by about 160-180 bps. They still maintain their FY13 EBIT margin guidance of 27% in constant currency, hedging losses is only going to be about Rs 25 crore. They are seeing an increase in L1B visa rejection rates and they are countering that by applying for more H1B.

Analysts take

Analysts say that whatever TCS management has said is more or less factored into the price. No one has changed their target price. But the management has very importantly said that it will be re-evaluating the deal pipeline in the month of June and thereafter they will be making a revised statement in the conference.

All bets will be after they re-evaluate once they come out with numbers and do an assessment of the deal pipeline in June. So that is going to be one of the important factors that the street is waiting for in terms of decision making.