Slowing revenue from financial services clients and seasonal factors such as holidays and furloughs in key western markets may cause Tata Consultancy Services to report muted earnings growth for the quarter ending December 31.
Though Q3 tends to be tepid for all IT companies, owing to seasonal trends, TCS Chief Financial Officer Rajesh Gopinathan has indicated that this time round there is heightened weakness in sentiments.
In a conference call with analysts, Gopinathan said: “Let’s say that we were bit more optimistic at the start of the year than what we are today. Compared to where we were last year, the mood is definitely different.” He did not give more details as TCS, which is the country’s biggest IT services provider and largest company by market capitalisation, does not provide guidance.Slowing projects
Sanchit Vir Gogia, founder CEO at advisory firm Greyhound Research, believes that the US general elections, which were conducted in November, resulted in many companies going slow on projects. “As a result of elections, the banking industry in the US has been affected. This, coupled with the impact of holidays and furloughs, has resulted in lower billing for IT companies,” Gogia added.
In addition, Q3 has fewer working days and broad-based furloughs across industries in the US and Europe, key markets for India’s $100 billion-plus outsourcing sector. A furlough is temporary leave given to some employees due to special needs of a company. “We expect the impact of furloughs to be felt in retail, manufacturing and hi-tech verticals. We will get more clarity on the exact impact in the next few weeks,” Gopinathan said, in his customary quarterly briefing with analysts.
The company’s numbers may also be hurt by unfavourable cross currency movements. However, the company is not seeing any cancellations or deferments of IT projects. TCS’ play in the insurance space and financial products domain (TCS BaNCS) continues to be under pressure.
Though Gopinathan did not provide specifics, industry watchers say that there is uncertainty over TCS’ $2.2-billion contract with UK-based Friends Life Group. Aviva, the UK’s second-largest insurer, recently said it is buying out Friends Life in a $8.8-billion deal. TCS’ UK-based subsidiary Diligenta was given the administration responsibility for 3.2 million policies of Friends in 2012.
“We expect UK to be weak (this quarter), impacted both by seasonal factors and insurance (slowdown). There is ongoing weakness in Diligenta,” said Gopinathan.
On the positive side, smaller verticals such as telecom, energy and utilities are expected to grow faster than the company rate. Ahead of the analyst briefing on Friday, TCS shares fell 1.48 per cent to close at ₹2,455.7 on the BSE.