Despite missed revenue expectations, TCS can still beat peers

India's largest IT services exporter TCS missed analyst expectations on the dollar revenue front for the first quarter but analysts said that the company is still on course to beat its top tier rivals in growth. The company announced its June quarter results on Thursday.

TCS' revenues grew 3.5 per cent to $4.03 billion during the quarter - the market was estimating a jump of more than 4 per cent. The headwind seems to be a pricing decline. Nevertheless, CEO and MD N. Chandrasekaran said that demand from its core markets such as North America remained strong. The management also pointed out "greater traction for digital solutions in verticals like financial services, retail and lifesciences".

How will the Greek crisis impact the company's as well as the industry's performance in the year ahead? Indian IT has little exposure to Greece but a high stake in Europe. TCS, for instance, generated 29.7 per cent of its revenues from Europe. Indian IT has not yet sounded any word of caution but analysts are watching.

Sanjeev Hota, analyst with brokerage house Sharekhan, expects TCS to clock a full year growth of 11-12 per cent; cross-currency headwinds on account of Euro movements can shave off nearly 1.5 per cent from the company's full year topline, he said.    

Ravi Shenoy of brokerage Motilal Oswal Securities is not expecting great demand for Indian IT in 2015/16 too, partly because of ramifications of the Greek crisis on Europe. He expects the top-tier companies to grow 10-15 per cent for the full year.

"TCS reported revenues and profits broadly in line with our estimates. USD revenue at 4.036 billion was marginally below our growth estimate of 4.1 per cent. Utilisation continues to be high at 86.3 per cent excluding trainees. We continue to rate TCS a neutral, as current valuations factor in sector leading growth rates," he said.

Both Shenoy and Hota believe TCS would lead other top tier companies in dollar growth. Hota pegs both Infosys and HCL to grow around 3 per cent, a tad lower than what TCS achieved.

TCS closed on the BSE at Rs 2,521.40 on Thursday, down 2.80 per cent. The BSE Sensex was at 27,573.66, down marginally at 0.41 per cent. The company announced results after markets closed.