TCS shares fall 5% on revenue growth warning - Livemint

In a meeting with analysts on Tuesday, TCS said that it did not expect the Indian market to pick up anytime soon and that it would impact its fourth-quarter performance. Photo: Mint

Bangalore: Shares of India's largest software services exporter Tata Consultancy Services Ltd (TCS) fell as much as 5% in early morning trade on Wednesday, a day after the Mumbai-based firm warned of a weaker-than-expected fourth quarter, weighed down mainly by uncertainty over government spending ahead of the general elections.

In a meeting with analysts on Tuesday, TCS said that it did not expect the Indian market to pick up anytime soon and that it would impact its fourth-quarter performance, joining Bangalore-based rival Infosys Ltd in issuing a weak guidance for the March quarter.

Based on TCS's commentary, most analysts expect TCS to post a sequential revenue growth of about 2% for the March quarter, lower than the 3.1% it posted in dollar terms in the December quarter.

"TCS suggests that quarter-on-quarter constant currency growth in the fourth-quarter will likely be a tad weaker than 3QFY14. TCS reported 2.2% constant-currency growth in 3QFY14; hence, the company seems to be effectively indicating it may be 2% quarter-on-quarter revenue growth in March 2014 quarter, which is modestly below the Street's expectation of 2.5-3% q-o-q growth," JP Morgan India analysts Viju George and Amit Sharma said in a note dated 18 March.

TCS, however, maintained that its revenue growth for the next fiscal year would exceed its performance this year—unlike Infosys, which said the fourth-quarter weakness might be carried over to the next fiscal year, impacting revenue growth.

During an investor briefing last week, Infosys said it had been affected by ramp-downs and project cancellations by some of its clients.

"Unlike Infosys, TCS suggests that the company has not experienced any ramp-downs during the quarter. There is nothing noticeable in sales cycles or project ramp-ups and 1QCY14 is similar to Q1 of earlier years. Management suggests that Continental Europe will likely grow ahead of overall company growth in FY15," said JPMorgan.

Shares of TCS, which have declined 2.23% so far this year, were trading down 4.7% at 10.15am on Wednesday on BSE.

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