TCS in a slow lane; will the growth pick up in Q3?

The performance of TCS in the September 2016 quarter may raise concerns among investors about its future growth trajectory. At 0.3%, the sequential growth in its dollar denominated revenue was the slowest in any of the September quarters in at least past eight years. Traditionally, the September quarter is considered as one of the best quarters for Indian IT companies with higher growth potential.

What may cause worry is that the company may have to report single digit growth for the second consecutive fiscal. In the previous fiscal, revenue grew by 7.1%, the slowest in six years. The company’s CEO and MD, N Chandrasekaran said in a press conference that the growth may pick up in the remainder of the year making it much better than the usually lukewarm growth seem during the December and the March quarters.

This is possible considering a relatively lower reference point in the form of lacklustre growth in the September quarter. In addition, some of the delayed projects may be commenced during this period. For instance, the company said over Rs 180 crore of revenue was delayed in India during the September quarter.

Another important factor is that the company is focusing on tight cost management at a time when the growth is slowing. In the September quarter, while revenue was below expectation, operating margin at 26% was better than what analysts had anticipated despite unfavourable cross currency movement.