Tata Consultancy Services expects degrowth in its energy sectors due to fall in oil prices

MUMBAI: Tata Consultancy Services, India’s largest IT services provider, has said its revenue for the ongoing quarter will be in line with that in the previous year, and that it expects revenue to shrink in its energy segment as its clients grapple with the low price of oil.
Falling oil prices have led drillers and oil services companies to clamp down on their spending, hurting Indian IT providers. Infosys and Wipro have also flagged weakness in the energy sectors.

“The revenue for the fourth quarter will be in line with last year. We expect some degrowth in the energy sector. That will take some time to stabilise,” Rajesh Gopinath, chief financial officer of TCS, said at a mid-quarter briefing with analysts.

The third and fourth quarters of the fiscal are typically weaker than the quarters in the first half of the year. Earlier this week, Praveen Rao, chief operating officer of Infosys, had raised concerns over revenue growth in energy sector. Wipro has also said it expects slow growth in its energy business in the next two-three quarters.

“Energy will be weak for all the companies this quarter. But they could gain in the long-term as oil companies look to consolidate and cut costs. This should not be a long-term concern and it is not such a large part of TCS’ revenue,” said an analyst with a Mumbai brokerage, who declined to be identified.

Energy and utilities contributed a little over 4% to TCS’ revenue in the previous quarter. Gopinath said that revenues from Europe will grow faster than the company average, adding that the company is seeing signs of recovery in its retail and manufacturing segments.

Mumbai-based TCS had reported a weak quarter in retail in the second quarter, which led the company to pare its full-year growth outlook. TCS is stronger in Europe than some of its peers, according to analysts, benefitting from early investments in the market.

“TCS is the prime beneficiary of high growth in Europe. It has a 42% share of the incremental revenue generated in LTM (last 12 months), much higher than its overall industry leading share of 33%. TCS invested in Europe ahead of its peers with SITAR (Swedish Indian IT Resources AB) and strengthened its presence with recent acquisition of ALTI,” Sagar Rastogi, analyst with Ambit Capital, said in a note last month. Gopinath said while there is still some weakness in the company’s Diligenta business, there are no other client specific issues in banking and financial services.