TCS will most likely miss Nasscom's FY16 growth guidance

The lacklustre performance of Tata Consultancy Services ( TCS) in the December 2015 quarter means the country's largest software exporter will most probably miss the revenue growth target stated by the industry body, Nasscom.

Nasscom expects IT export revenue to grow by 12-14% for FY16. To meet the lower end of the estimate, TCS requires to report revenue of $17,300 million for the full year. It has clocked a revenue of $12,337 million in the first nine months of the fiscal. It requires $4,971 million in revenue for the March quarter, which means a Herculean task of growing revenue by 20% sequentially over the revenue of $ 4,145 million in the December 2015 quarter.

FY16 has been a challenging year for TCS so far. Slowing growth at the company's UK facility, volatile business in India, which accounts for 6% of revenue, cross currency fluctuations and slower addition in larger client accounts affected the company's business. In contrast, the previous fiscal was of brisk growth when the company reported 15% increase in the dollar denominated revenue.

The company added three clients in the bracket of accounts that yield more than $ 20 million in the December 2015 quarter compared with the previous quarter. In the December 2014 quarter, it had added 10 accounts in this bracket. The lower client addition reflects the increased caution among clients and a delay in decision making with respect to larger contarcts.

The March quarter has historically been weak for Indian IT exporters since clients are in the process of deciding full year IT budgets. TCS had suffered a marginal drop in revenue in the December quarter due to flood in Chennai where it has a major development centre. Given this, the March quarter growth may be slightly better in sequential terms. However, it will be far less to help the company meet the industry's average growth guidance. The March quarter will be crucial for investors to determine whether the company will be able to resume growth based on its management's commentary.



Source: Company, ETIG