In ‘unusual’ Q2, TCS topline dips, margins shore up profits

Our Bureau Mumbai | Updated on January 16, 2018 Published on October 13, 2016

TCS CEO and Managing Director N Chandrasekaran.

TCS CEO and Managing Director N Chandrasekaran.

Delays in discretionary spends, volatility a drag

India’s largest software exporter Tata Consultancy Services reported an 8.4 per cent rise in consolidated net profit to ₹6,586 crore for the second quarter of 2016-17, thanks mainly to an improvement in the operating margins to 26 per cent against 25.1 per cent in the same period last year.

With the demand for software services remaining soft and customers delaying discretionary spending, consolidated revenues declined 0.1 per cent sequentially to ₹29,284 crore during July-September, the key quarter for the company. In the corresponding previous period, TCS clocked revenues of₹27,165 crore.

“It has been an unusual Q2 for TCS. Growing uncertainty in the environment is creating caution among customers and resulted in holdbacks in discretionary spending this quarter. In addition, volatility in markets like India and Latin America also muted revenue growth,” said TCS CEO and Managing Director N Chandrasekaran.

He said the retail and financial services verticals will continue to be soft in the third quarter.

In dollar terms, TCS’ revenues were up 5.2 per cent at $4.37 billion in the quarter from $4.16 billion in the corresponding previous period. Sequentially, the revenue growth in constant currency terms was only 1 per cent. Net profit rose 6.2 per cent to $984 million in the three months under review from $926 million in the quarter last year.

Chandrasekaran said the results were also affected by a delay in a ₹180-crore domestic project that will get completed only in the third quarter. The company added only one new client in $50-million-plus category and none in the $100-million-plus segment.

Given the backlog of delayed projects, Chandrasekaran said, “We expect a better Q3 and Q4 than previous years.” While the impact of depreciation of the pound-sterling weighed on TCS results, Chandrasekaran said the impact of Brexit has not been felt so far. “In the UK, BFSI has performed very good. Softness was there in retail, but we see no impact of Brexit so far.”

While the UK business was flat, Europe saw strong sequential growth at 3.7 per cent and Asia-Pacific at 3.5 per cent (in constant currency terms) while North America grew 1.4 per cent.

India business declined 7.6 per cent sequentially while Latin America yo-yoed, TCS said.

TCS added 22,665 employees on a gross basis and 9,440 net employees, taking its total headcount to 3.71 lakh as of September 30, 2016.

Some of the analysts hinted at downgrading the TCS stock due to the poor performance in the quarter. “Given the under-performance by the company this quarter, we would soon revise our numbers and target price,” said Sarabjit Kour Nangra, VP Research- IT, Angel Broking.

Published on October 13, 2016
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