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The muted revenue guidance from Tata Consultancy Services (TCS) for the December quarter has done its bit to spook the markets. After conveying to analysts late last week that it expected revenue growth in the March quarter to be impacted by cross-currency movements, many have rushed to cut the earnings and revenue estimates for FY16. Some analysts now expect TCS to grow revenues by 13 per cent in the next financial year, 60-80 basis points (bps) lower than earlier estimates. In FY14, TCS had 16.2 per cent revenue growth.
In an analysts’ meet, the firm conveyed its constant currency growth would be in line with historical trends but cross-currency headwinds would impact sequential growth in dollar revenues. In the comparable quarter in FY14, TCS had reported sequential revenue growth of 1.9 per cent in constant currency. But it was four per cent in March FY13. The company said cross-currency headwinds of 200 bps would erode the dollar revenue growth rate. In the December quarter, dollar revenue grew 0.5 per cent sequentially and the March quarter is expected to be similar. However, operating margins are expected to remain stable in the March quarter.
As cross-currency headwinds are expected to continue in FY16, analysts are beginning to pare their growth estimates for the new financial year. TCS exited FY14 with 16.2 per cent revenue growth but after the current commentary, analysts expect the firm to report dollar revenue growth of 13 per cent in FY16. The firm refused to give any colour on FY16 and is expected to give the details during the fourth-quarter earnings call. Nomura expects TCS to record dollar revenue compounded annual growth rate (CAGR) of 14 per cent and earnings per share CAGR of 15 per cent over FY15-17. Emkay Global has cut its revenue growth for FY16 and FY17, building in 13.2 per cent dollar revenue growth in FY16 and 14 per cent in FY17, lower than previous estimates.
