Proposed US Jobs Act to have limited short-term impact on TCS: Moody’s

The US Senate’s “Bring Jobs Back to America” bill, if enacted, would have a very limited impact on India’s top software services firm TCS in the short term, but could dampen growth rates in the country’s IT industry over longer term, ratings agency Moody’s today said.

The Bill discourages mainly manufacturing companies from outsourcing overseas, by providing a 20 per cent tax credit on eligible costs to companies which move outsourced activities back to the US.

“TCS’ A3 issuer rating and stable outlook are unaffected by the proposal due to the company’s established brand, competitive positioning and strong operating performance,” Moody’s Analyst Ms Nidhi Dhruv said in a statement.

These factors should help it withstand immediate fallout from the bill — should it be passed in the US, one of its most important markets, she said.

The US market accounted for 51 per cent of Tata Consultancy Services’ (TCS) consolidated revenue for FY2012.

“However, the Act — assuming the legislation passes — will hinder contract renewals, and dampen growth rates in the Indian IT services industry over the longer term,” Ms Dhruv said.

Moody’s was of the view that TCS could partially mitigate the negative effects of the legislation over the long term.

The company has high EBITDA margins of about 29.5 per cent which allows it some flexibility to accommodate discounts to its US customers, as compensation for the tax credit, it said.

TCS has also demonstrated customer stickiness, as evidenced by its high customer retention rates of above 95 per cent, over the past two years, it added.

“Nonetheless, we remain cautious about the challenges that TCS along with other Indian IT outsourcing companies could face in the form of slowing demand as economic uncertainties fester, coupled with political and policy initiatives that incentivise insourcing in key markets like the US,” Moody’s said.

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