Europe to drive growth for TCS for Q1 FY15

Company says smaller verticals to grow better than company average

For India's largest IT services provider Tata Consultancy Services (TCS) its business as usual with Europe and smaller verticals driving growth.

Rajesh Gopinathan, CFO, TCS, said while updating analyst about business for the first quarter of FY15. "There is no change towards revenue outlook compared to the Q4 earning calls. Large verticals will grow at or around company average. The smaller verticals like media, LHSC and TTH will grow better than company average," he added.

Gopinathan also maintained that Europe will continue to drive growth and India will remain flat, something which the company has maintained in the past. In the last quarter, ended March 31, 2014 Europe grew 7.6%. While India revenue was flat at 0.3 per cent. TCS also maintained that the first half of FY15 will be better than the second half.

However, the quarter will have a few one-off items that will impact its margins. First, will be the salary hike that is expected to have an impact of 200 basis points. And currency impact due to appreciating rupee will impact margins by 100 basis points. The company has stated earlier that it will maintain its margin in the 27-28 per cent range.

"There were no surprises as the company has maintained status quo. But they did say that they are changing their depreciation policy which will have a one-time impact," said an analyst.

The company said that in light of the recently amended regulations they have changed their depreciation policy. In terms of IFRS filing the change will have a one-time impact. Whereas in case of India GAAP, there will be a write-back of 4-5 per cent of fixed assets.

"Q1 expects to be inline with the earlier management commentary. We expect 4.5 per cent growth in US dollar revenue growth. Currency movement will impact margins by 100 basis points and salary hike will be an additional 180-200 basis points. In terms of growth drivers, US growth is driven by project based work, while Europe by outsourcing contracts," said Ankita Somani, research analyst at MSFL.