Slowdown in TCS to weigh on Tatas' growth ambitions

span.p-content div[id^=div-gpt] { line-height: 0px; font-size: 0px;} Tata Consultancy Services (TCS) revenue growth in FY17 was the slowest since FY09 and for first time since its listing in 2005, both top line and bottom line growth were in single digits. This, analysts say, could have a big impact on the Tata group's growth plans, given that surplus cash has been helped the Tatas maintain their growth streak despite the poor profitability of the rest of the group since the 2009 Lehman crisis.

While on the previous occasion, the company experienced a V-shaped recovery, this time around analysts see a structural slowdown in the global IT sector, leading to sub-par growth for the company. "I don't foresee any immediate pick-up in the IT sector growth for at least two years. This would translate into single-digit growth for most Indian IT companies during the period," says G Chokkalingam, founder & CEO, Equinomics Research & Advisory. Earlier this month, Gartner cut worldwide IT spending growth in 2017 to 1.4 per cent from its earlier forecast of 2.7 per cent growth.

This would translate into lower growth for TCS, hurting the dividend income of its parent Tata Sons, the group holding company. Tata Sons owns 73 per cent stake in TCS, the highest among any listed group companies and dividend income from latter has been the prime source of revenue and profits for the holding company in the last decade. This cash in turns finds its way to various group companies -- listed and unlisted -- as incremental equity investment.

Tata Sons is estimated to have cumulatively earned nearly Rs 45,000 crore worth of equity dividend from TCS since its listing in 2005. Besides the holding company has raised capital in the past by either divesting its stake in the company or pledging a part of its TCS holding with lenders. Tata Sons owned 80.64 per cent stake in TCS post its listing in last quarter of 2004.document.write(""); googletag.cmd.push(function() { googletag.defineOutOfPageSlot('/6516239/outofpage_1x1_desktop', 'div-gpt-ad-1490771277198-0').addService(googletag.pubads()); googletag.pubads().enableSingleRequest(); googletag.pubads().enableSyncRendering(); googletag.enableServices(); });

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