After Infy slip,TCS expected to lead IT pack

India's largest IT-services exporter,TCS,is expected to post about 3 dollar revenue growth sequentially during the January-March stretch,according to brokerage houses

India8217;s largest IT-services exporter,TCS,is expected to post about 3 dollar revenue growth sequentially during the January-March stretch,according to brokerage houses. Analysts expect margins to slip 30-60 bps owing to the one-time lawsuit settlement of close to 30 million in the US during the quarter.

After the lacklustre performance by Infosys on Friday,all eyes are now on TCS to set the tone for the 76-billion Indian IT-services industry,which is seeing a muted growth in its biggest markets. Analysts expect the Mumbai-headquartered firm to lead the top-tier IT pack in terms of dollar revenue growth when it posts earnings on Wednesday.

Ankita Somani,IT analyst with Angel Broking,expects TCS to lead the IT majors in terms of dollar revenue growth. We expect TCS to post a 3.2 dollar revenue growth q-o-q. And we will closely look at the company8217;s commentary on pricing,margin and discretionary spend,which will give an indication of where the Indian IT industry is heading, she noted,adding that margin might decline slightly by about 30 bps sequentially due to the one-time lawsuit settlement in the US.

CLSA,in its latest report,projected TCS to report 3 sequential growth in dollar revenue to 3,036 million with 30-40-bps adverse impact from cross currencies,while margins should be down about 60 bps q-on-q. Given the size of TCS at over 10 billion,it continues to enjoy superior operating margins. At the end of the third quarter,the operating margin was 27.2. According to the brokerage house,TCS should continue its solid financial performance,but we see limited potential for earnings upgrade and re-rating precluding any significant stock upside hereon.

Last week,Infosys has reported a drop of over 200 bps in its operating margin,which traditionally has been its forte,due to a slip in pricing,adverse currency movements and slower deal ramp-ups. The operating margin has declined to 23.55 from 25.65,while most analysts were expecting it to be around 24.50. For Infosys,pricing declined by 0.7 q-o-q against 3.7 in the December quarter.

Over the last one year,brokerage houses have been increasingly looking at TCS as the industry bellwether because of its consistent earnings and revenue projections in line with IT-BPO trade body Nasscom8217;s forecast for the overall sector.

Last month at an analyst briefing,TCS indicated that the company is on track to meet its full-year plan for FY13,while pricing is expected to remain stable and growth will be driven by volumes during the January-March quarter. The management also hinted at FY14 to be a better year in terms of the business environment compared to the previous fiscal.

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TCS maintains that FY14 could be a better year than FY13 and has strong confidence in their March quarter performance. Clearly,Infosys8217; problems are more company-specific and company would need to do a lot of heavy lifting to keep their market share from sliding. The stock could remain volatile in the near term with TCS being one of the key beneficiaries of Infosys8217; misfortunes, said Bhuvnesh Singh,head of India research,Barclays,in its latest report.

Apart from TCS,HCL Technologies and Wipro are also slated to announce results this week. While HCL Tech reports on April 17,Wipro is announcing its numbers on April 19. According to a CLSA report,HCL Tech is expected to post 3 sequential dollar revenue growth,while Wipro could report 1.7 growth.