Tata Consultancy Services, India’s largest IT firm by headcount, may beat its own estimate of a flattish revenue growth for the second quarter owing to positive developments in demand.
“We expect TCS to build on the momentum seen in June ‘09 quarter as business from its top financial services clients especially in North America sees an uptick even as stability in European banks is sometime away. Traction in a few large North American retailers is also expected to drive a double-digit growth in TCS’ retail vertical,” Bhavtosh Vajpayee and Nimish Joshi of CLSA Research wrote in a recent note to clients.
As a result, industry analysts say, TCS would overachieve its estimates. “Our checks indicate that these numbers will be proven low, compared to the ramp-up beginning among TCS’ customer base. We are building in a 2.5% quarter-on-quarter revenue growth and even this could likely be beaten,” wrote Vajpayee and Joshi.
Analysts term the optimism on revenue growth for large IT firms is driven by factors such as turnaround in IT spending in financial services sector as also reduction in protectionist sentiments.
Similarly, Kanwaljeet Saluja and Rohit Chordia of broking firm Kotak Securities in a recent note to clients wrote, “We have been positively surprised by the timing and extent of business flow optimism among the tier-I companies. Our recent discussions with the TCS management reaffirmed the enhanced optimism.”
The firm’s recent win of a part of the $2 billion outsourcing contract from British oil firm British Petroleum is being seen by analysts as precursor to more large deals. “Vendor consolidation is a necessity now for most firms in US and Europe for cost reduction purposes. This means more business opportunity for large IT service providers such as TCS,” said an analyst tracking IT sector in Mumbai.
Besides large deals, opening up of spending on IT by financial services and retail firms in the West also spells opportunity for TCS. “Among verticals, we continue to see sectors like telecom and manufacturing languishing. Others like BFSI, retail, life sciences, and utilities are stabilising and looking up slowly,” said a TCS spokesperson.
While the spokesperson chose not to comment on whether TCS is seeing any newer scope of work (ramp-up in IT industry parlance) from its existing clients, analysts are upbeat on TCS’s recent win of large deals.
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