Tata Consultancy Services Gives Better Guidance Than Infosys

After Infosys reporting weak results and subdued guidance during its announcement for the March quarter, the markets seemed rather worried about the current state and outlook of the IT industry. However, with the result announcement of other IT bellwethers the problem seems to be more company-specific than for the industry. First it was HCL Technologies and now it’s TCS that has come out with decent financial numbers for the March quarter. On a consolidated basis the topline of the company jumped by 0.4 per cent on a QoQ basis to Rs 13,259 crore while the bottomline grew by 3 per cent on a QoQ basis to Rs 2,919.4 crore.

The net profit margin improved by 50 bps QOQ to 22 per cent. Moreover, in this scenario the dollar revenue growth of 2.3 per cent has shown a better situation for the IT companies. According to a media report, TCS will be able to achieve dollar revenue growth of more than 11-14 per cent of NASSCOM’s prediction for the industry which has come against Infosys’ weak guidance of 8-10 per cent.

Also, the outlook seems to be giving conflicting signals between major IT companies. On one side where Infosys sounded more cautious for FY13, HCL and TCS are expecting decent growth despite challenges on the global front.

TCS’ managing director and CEO, in a statement to the media, has said that he feels much better going into Q1 than what he felt going into Q4 and is confident of beating NASSCOM’s 11-14 per cent growth guidance. The company added 42 new clients as against 40 in the previous quarter. The company also witnessed a jump in the volumes which is quite appreciable in the current week global scenario. And with the net addition of 19,156 employees, the total employee strength stood at 2,38,583 by March 31, 2012.  

The quarter no doubt has seen downside in revenue growth in the BFSI and energy segment but the other segments have helped the company to report good set numbers during the quarter.  The company management feels that it does not see any cause for worry and there have been no project cancellations or ramp-downs. Infosys, on the other hand, blamed a few client-specific issues for its dismal performance.

In the previous quarter the company’s CEO, N Chandrasekaran, had said that all the macro concerns remain for Europe but based on the data points they had there was no reason why growth would slow down from the current levels. “We continue to close deals, ramp up and things are looking okay,” he had said. On the outlook for the fourth quarter the company had said that they expected pricing for its services to remain stable despite the debt crisis in Europe, which is its second biggest market after the United States.

Looking ahead to FY13, Chandrasekaran said, “TCS is well prepared to achieve balanced growth across the industries and markets it operates in, given its holistic portfolio of services which are now achieving significant scale across markets.” However, Infosys sounded more cautious and said that the outlook in FY13 looks grim due to the European crisis which may impact the business. And considering the macro issues the company has lowered its revenue guidance for the coming quarter and for FY13.

We believe that TCS has reported good Q4 numbers, indicating that the health of global outsourcing and the IT business is strong. However, any further deepening of the European crisis may impact the business in the coming quarter.