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Tribunal order unlikely to impact TCS, but other concerns remain

Mumbai: India’s top IT services provider TCS is unlikely to be impacted in the near term due to the National Company Law Appellate Tribunal’s decision on Tata Group holding company Tata Sons, analysts said.

TCS may, however, see subdued earnings growth in its key banking and retail verticals in the second half of the ongoing fiscal year due to continued macroeconomic uncertainty, they said.

“The news is big and has been affecting Tata Group companies’ shares negatively. However, specifically on TCS, it will likely not have any immediate impact in seeking out new clients or in relationship with existing clients,” said Mrinal Rai, principal analyst at technology consulting firm Information Services Group. TCS will remain unaffected by any changes, said Sanchit Vir Gogia, CEO of Greyhound Research.

“Since anyway there were no assurances of business from Tata Sons coming to TCS, there should not be a tangible difference,” he said.

In terms of new business, the software exporter has a “good pipeline” for the next three quarters, he added.

The outlook for revenue growth in its banking and retail verticals in the second half is likely to remain sluggish, according to analysts. The verticals contribute a combined 46 per cent to overall revenue.

Following a recent meeting with the TCS management, analysts said the conversion of backlog into revenues would happen at a slower pace due to the uncertain economic environment in key markets like Europe and the elections in the US.

“We believe the conversion of backlog into revenues is happening slower than expected as clients try to optimise their run spends in uncertain macro and upcoming elections,” said Aniket Pandey, analyst at Prabhudas Lilladher.

“For most of the US and Europe banking clients, the budgets would get released by Q1 and reach the peak in Q2. Banks typically take stock of the situation in Q3 (and furloughs will start in November, December) and invariably there would not be any new spend in Q4,” he said.

According to the brokerage, client-specific concerns in the retail vertical may get resolved sooner, although it has maintained its cautious outlook on financial services and does not expect a quick recovery.

TCS chief executive Rajesh Gopinathan told ET after its second quarter results that the company had expected growth in the retail vertical to return sooner. “There have been some changes from the start of the year to where we are now. Some aspects we called out wrongly. We thought growth in retail would have come back. But we are capturing demand and moving to satisfy it,” he had said.

Source: Economic Times