The Hindu Business Line : Global slowdown tells on TCS growth; Q1 profit up 7%

Mumbai, July 16 The country’s largest software company Tata Consultancy Services (TCS) delivered a second consecutive quarter of muted growth, which it attributed to the general global economic slowdown and foreign exchange fluctuations.

The company’s consolidated net profit rose 7 per cent to Rs 1,290.61 crore against Rs 1,202.93 crore in the year-ago period.

Total income rose 25 per cent to Rs 6,530.34 crore from Rs 5,211.54 crore. (The company had reported a four per cent growth in net profit in the fourth quarter of the previous fiscal).

It has been a challenging first quarter for the company and the IT industry due to the threat of recession, rising crude prices and the unfavourable economic environment across the world, Mr S. Ramadorai, CEO and MD, said at a news conference here on Wednesday.

There is still uncertainty in the environment and there could be issues with respect to specific clients in the banking and financial services space, said Mr Ramadorai. Currently, BFSI accounts for about 40 per cent of TCS’ overall revenues.

The quarter saw a dip of 110 basis points from this segment as a percentage of overall revenues. Average billing rates dipped 0.9 per cent.

Moreover, TCS took a hit of about Rs 75.3 crore as net foreign exchange loss, due to depreciation of the rupee witnessed in the quarter, said Mr S. Mahalingam, Chief Financial Officer and Executive Director. The TCS’ revenues from one of its top 10 customers – a large bank, have also come down, as the bank has been demerged into three banks, according to Mr N. Chandrasekaran, Chief Operating Officer and Executive Director .

“We are in the process of reworking this contract with that bank,” he said.

Two of its top 10 clients that had postponed engagements and impacted revenues the last two quarters, have turned around, said officials.

The company grew by eight per cent in the US, the UK and Europe geographies. It won about 12 deals in the quarter, three of which were in the $75-100 million range. However, the company added only 35 clients in the quarter, compared to 50 in the previous sequential quarter.

“We would not read much into this,” said Mr Chandrasekaran.

Cost cutting moves led to a 217 basis points decrease in the company’s sale and general expenses as a percentage of revenues, added Mr Mahalingam.

“The company was able to mitigate the impact of wage increases – to the tune of about 10 per cent – by rupee depreciation and improvement in SGA,” he said.

The TCS scrip touched an intra-day low of Rs 719.1, before closing at Rs 727.35, 2.98 per cent lower than the previous day’s close on the BSE.