TCS now says margins, volumes may be lower in Q2

TCS, which had painted a rosy picture about the year ahead after the first quarter earnings, has now expressed some concerns about its margins in the second quarter, according to analyst reports.

According to the reports, the management has said volume growth for the second quarter is likely to be lower than the first. The management said that it will deliver a 4.5-4.8 percent qoq volume growth in second quarter compared with 5.3 percent in the previous quarter.

Unfavourable cross currency movement is likely to impact revenue growth which could be in the range of 4-4.5 percent.

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Margins

In addition to lower volume growth, TCS also expects a slight dip in margin during the second quarter on account of some campus recruitments and some lower margin project ramp ups that it undertook in India and APAC. Aditionally, the company recently opened a development centre in Minnesota in the US.

“These developments are likely to absorb gains coming in from INR depreciation against the USD. TCS has decided to invest the benefits of INR depreciation in pursuing lower-margin strategic deals that may not have met its margin threshold earlier,” an Angel Broking report said.

Separately, a Nirmal Bang report has argued that the benefits of the falling rupee has enabled the company to take newer contracts with some costs attached. ‘The IT major has also re-invested some benefits into its business and has funded investments in new geographies, which operate at lower margins. This is the reason why the company is not likely to fully realise the benefits of a weak rupee at the margin level and its desired target of 27% EBIT margin is unlikely to be significantly surpassed’

However, the company has maintained its stable outlook in the deals pipeline and has seen a healthy demand environment.