TCS signals slower growth and low margins in the near-term

TCS, India’s largest software exporter, has told analysts of weakness in business and margin decline in the near-term due to fewer working days this quarter.

At least three equity analysts who attended the company's analyst meet on Monday told ET Now that while the company flagged off near-term challenges, this was largely on expected lines because the October-December quarter is seasonally weak for the entire industry.

“Neutral on revenues, negative on margins- is how I would describe the tone of the management,” said one analyst with an MNC brokerage firm, who did not wish to be named. Another analyst said, “The management spoke about furloughs in the December quarter and also adverse margins because growth hasn’t been sufficient enough.”

Analysts said TCS CFO S. Mahalingam spoke about furloughs in sectors such as hi-tech, manufacturing and BFSI. Furloughs would essentially mean fewer working days because of the holiday season in US and Europe, which will have a direct impact on billing onsite.

The company also said that its hiring plans are on track and sub-contracting costs are going up. As a result, margins will take a hit as the continued investments will not match the revenue growth in the near term.

TCS’ comments comes barely weeks after Infosys spoke about a threat to its annual guidance because of ramp downs, delays in deal closures and the impact of Hurricane Sandy.

But TCS has said that these headwinds have been factored in at the beginning and there are no surprises. However the management was non-commital on budgets for next year, stating that there will be more clarity when it announces its third quarter results next month.