India’s largest tech firm turned in a somewhat disappointing set of numbers for the March 2009 quarter with global dollar revenues, excluding CGCL and CMC, falling 8.5 per cent sequentially. However, with employee costs being reined in, the earnings before interest and tax (EBIT) margin came off by just 110 basis points sequentially to 23.7 per cent.
The good news is that Tata Consultancy Services (TCS) continues to win deals—during 2008-09 it won as many as 27 large deals and what’s more, over the last six months, payments haven’t been as delayed as they were earlier.
However, given that the operating environment is likely to remain challenging, it’s not surprising that analysts are pencilling in an 8-9 per cent fall in dollar revenues for TCS in the current year, while rupee revenues could be flat or marginally higher.That’s because pricing pressures are expected to continue---the management believes pricing could fall by low single digits.
As for volumes, already repeat business is hard to come by with clients trimming their IT budgets. So, until IT spends recover volumes will not. While the BFSI space, to which TCS has a fairly large exposure, hasn’t done as badly as feared, business from verticals such as manufacturing, hi-technology and telecom is particularly dull.
In the meanwhile, the management hopes to keep selling costs in check and become more efficient by improving the offshore-onsite mix . Earnings per share for the company are expected to remain flat in the current year and at Rs 552, the stock trades at around 10.5 times. That’s a discount to peer Infosys which trades just about 13.5 times and justifiably so given the better performance, especially the superior operating margins.
