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>TCS (RELIANCE MONEY)
TATA COSULTANCY SERVICES
Company Update
Action - SELL
The worst is still not behind us…
* Project cancellations intensified, Q4FY09 is likely to be dismal …
There have been project cancellations in the last two months across the board, more severely in BFS, Manufacturing and Telecom with some amount of resilience witnessed in Retail, Pharma and Utility verticals. Nevertheless, management indicated at newer deal flow albeit at a slower pace. On the other hand, as clients are trimming their overall IT budgets, there could pressure on volume growth in the coming quarters, however some respite can be expected by Q2FY10E, with bottoming out of project cancellation and revival in organic volume growth.
* Pricing cuts worries intensify; margins to come under pressure..
TCS’s management indicated that pricing pressure from clients increased in the recent months and renegotiation requests are coming in to the extent of ~5%-15% cut in the contracts. However, management expects to negate the pricing pressure to the extent of single digit pricing cut by exercising the internal levers like higher offshoring, cut in variable pays (~8%of salary), increase in working hours (~45 hrs per week from ~40hrs earlier) coupled with bringing down the bench strength (already substantially reduced outside of India bench strength).
To see full report: TCS
Company Update
Action - SELL
The worst is still not behind us…
* Project cancellations intensified, Q4FY09 is likely to be dismal …
There have been project cancellations in the last two months across the board, more severely in BFS, Manufacturing and Telecom with some amount of resilience witnessed in Retail, Pharma and Utility verticals. Nevertheless, management indicated at newer deal flow albeit at a slower pace. On the other hand, as clients are trimming their overall IT budgets, there could pressure on volume growth in the coming quarters, however some respite can be expected by Q2FY10E, with bottoming out of project cancellation and revival in organic volume growth.
* Pricing cuts worries intensify; margins to come under pressure..
TCS’s management indicated that pricing pressure from clients increased in the recent months and renegotiation requests are coming in to the extent of ~5%-15% cut in the contracts. However, management expects to negate the pricing pressure to the extent of single digit pricing cut by exercising the internal levers like higher offshoring, cut in variable pays (~8%of salary), increase in working hours (~45 hrs per week from ~40hrs earlier) coupled with bringing down the bench strength (already substantially reduced outside of India bench strength).
To see full report: TCS
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