Brokerages says TCS management rejig not to affect performance

 Tata Consultancy Services (TCS), the software services company of the Tata Group, which announced its quarterly results on Thursday, may have announced a forced change in management, but it is unlikely to have a major impact on the company’s performance going forward, according to most of the brokerages.

“Though a leadership change amidst the industry going through significant transition may not be viewed by some as an optimal option, we believe that Rajesh Gopinathan will provide continuity of leadership having been a Tata Group lifer and with TCS since 2001,” ICICI Securities said.

“TCS’ decentralised operating structure and decision-making — where leaders of micro verticals manage individual profit and losses and decide their own pricing, go-to-market and solutioning strategies — should also ensure that the execution engine of TCS continues to work like before with limited disruption,” ICICI Securities added.

“We believe that elevation of an insider to the CEO post will ensure smoother transition and continuation of the company's strategy,” Edelweiss said.

TCS on Thursday announced the appointment of Gopinathan as its new chief executive officer and managing director following the appointment of TCS MD and CEO N Chandrasekaran as the chairman-designate of Tata Sons. The company also named N Ganapathy Subramaniam, who is currently President, TCS Financial Solutions, as the president and chief operating officer.

TCS had reported a 2.9% rise in sequential net profit for the quarter ended December 31, 2016, at Rs 6,778 crore, compared with Rs 6,586 crore in the September quarter. Religare, however, believes that TCS could see some short-term operational challenges due to the management change.

“Macro issues like Brexit and slowdown in US BFSI pose significant near-term headwinds. TCS’ large base ($ 17.6 billion), and relatively higher exposure to BFSI (40% of revenues) and the UK (13% of revenues), will pose significant challenges to its growth over the next few years. We also foresee near-term operational challenges, arising out of the management transition,” Religare said.