The Hindu Business Line : TCS revenue disappoints

TATA Consultancy Services (TCS) has spooked the markets with an earnings performance for the fourth quarter ended March 31, 2005, which has turned out to be below market expectations. Since the markets were already rattled by the lower-than-expected earnings guidance for 2005-06 by Infosys Technologies, the stock was hammered towards the end of the day's trading session.

After making all the adjustments, TCS has recorded a two per cent rise in revenues and a five per cent drop in post-tax earnings on a sequential basis (comparing the fourth quarter vis-à-vis the third quarter ended December 31, 2004). The adjustments relate to additional performance incentive in the latest quarter and a forex gain in the immediate previous quarter. Though the earnings performance have been disappointing, the markets have over-reacted, if some of the key elements of the latest quarter are taken into account such as:

The company sources have attributed the relatively sluggish revenue growth to a slower than expected ramp-up in some of the customers. But they have indicated that the demand environment for offshoring continues to be fairly strong and the growth momentum will pick up again in the coming quarters. This appears to be consistent with the overall stance of its multinational and Indian peers, namely IBM and Infosys.

The contribution of GE, its largest customer, has come down to 14 per cent from about 17 per cent at the start of the year. The clients contributing revenues of $5 million, $10 million and $20 million have grown steadily. There has also been a good client addition in the latest quarter.

The operating profit margin has remained stable at 28.4 per cent, a marginal 0.4 percentage point drop on a sequential basis.

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