Expect Q4 revenue to be in-line with last year's, says TCS

Currency volatility to have negative impact of 275 basis points, says management

The fourth quarter of 2014-15 for India’s largest information technology services provider, Tata Consultancy Services (TCS), will be similar to the fourth quarter of 2013-14, says the company.

The management adds that currency volatility will have a negative impact of 275 basis points (bps) in constant currency on Indian rupees and a negative of 200 bps to dollar revenue. It, however, a positive impact of Rs 150-200 crore due to hedging.

Rajesh Gopinathan, its finance head, interacting with analysts before the fourth quarter results are announced, said: “The Q4 2015 revenue is expected to be in line with last year's trend. Retail, manufacturing and hi-tech is recovering from a muted Q3.”

TCS in the third quarter had surprised the Street with muted volume growth, due to furloughs in certain sectors and a generally slow quarter due to the holiday season in its major markets of the US and Europe.

For the quarter ended December 2014, it reported a volume growth of 40 bps.

For Q4 of 2013-14, TCS had reported a revenue growth of 1.2 per cent on a sequential basis in rupees and 1.9 per cent in dollars. The volume growth for Q4 was 2.3 per cent.

Gopinathan said the company continues to see weakness in its insurance and energy verticals, and its business from Diligenta continues to be weak. However, banking and financial services are in line and the company sees strong momentum in its IT-enabled services business.

“I think the Q4 numbers will be in line. The company has stated it sees momentum in retail, manufacturing and hi-tech. I think TCS on an annual basis will do better than Nasscom’s (the apex sectoral body) growth target for the industry,” said Ankita Somani, research analyst, MSFL Research.

TCS maintained Europe will grow better than average and despite the currency headwinds, it will manage to hold its earnings before interest and tax margins in the requisite band.

“TCS is sounding extremely cautious. I think after the performance of the past two quarters, the company seems to have toned down its commentary to the market,” said an analyst, on condition of anonymity.