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TCS unlikely to match Infy Q1 show

By Sreejiraj Eluvangal in Mumbai
July 18, 2006 12:57 IST
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Tata Consultancy Services is expected to post lower growth for the first quarter this year compared with smaller rival Infosys, which beat analysts' expectations by a wide margin.

While analysts at major broker firms expect revenues to grow between 5 and 10 per cent, including a 3 per cent inflation owing to the depreciation of the rupee, forecasts for the bottomline offered less consensus, ranging from a decline of 1.3 per cent over the last quarter to a jump of 7 per cent over the same period.

"We expect a jump of 10 per cent in revenues for the quarter, aided by rupee devaluation," said Parul Inamdar, IT analyst at the broking firm Prabhudas Liladher.

Though the volume of business is likely to increase only by around 7 to 7.5 per cent, Inamdar expects the 3 per cent relative appreciation in the US currency and the nearly 9 per cent jump in the Euro to take the growth rate into double digits.

While the consensus among brokers is around 7 to 7.5 per cent top-line growth, Infosys had beaten the street expectations by 50 per cent, registering a 15 per cent jump in revenues against an expected 10 per cent.

Another factor likely to give a fillip to growth this quarter is the kick-off of the 12-year mega BPO deal with British Life Insurer Pearl, expected to add nearly 40 million a year (Rs 335 crore) a year to the company's topline.

Though the company, through its subsidiary Diligenta is expected to have started on the project two months ago, analysts were spilt on how much revenues the new operation would bring.

"It is difficult to estimate revenues from the Pearl contract during the first quarter," says Saurabh Gupta of Pranav Securities.

Gupta has put a conservative 6.2 per cent estimate on the likely revenue growth, in effect, a modest 3 to 3.5 per cent increase after deducting the 'Rupee effect'.

"TCS is a back-end growth company, we expect a more subdued growth during the first quarter without affecting the over-all projections for the year," he added.

The relative consensus on the growth rates however does not extend to the bottom-line, with nearly all the analysts predicting that the loss on company's un-exercised hedges against an appreciation in the Rupee is likely to negate any gains from the increase in value of its forex holdings.

In case of Infosys, the company lost nearly Rs 27 crore (Rs 270 million) on value erosion on its forward forex contracts and un-exercised options, but in turn gained Rs 80 crore (Rs 800 million) due to the appreciation of the rupee-value of the company's huge forex reserves.

This is unlikely to be the case with TCS, as at the end of the March quarter TCS had cash reserves of Rs 171 crore (Rs 1.71 billion) against nearly Rs 4,000 crore (Rs 40 billion) with Infosys.

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Sreejiraj Eluvangal in Mumbai
Source: source