TCS may miss double-digit growth target this fiscal

Our Bureau Mumbai | Updated on October 11, 2019 Published on October 10, 2019

(From left) Milind Lakkad, Executive Vice President and Global Head – Human Resources, Tata Consultancy Services (TCS), Rajesh Gopinathan, CEO and MD, TCS, N Ganapathy Subramaniam, COO and Executive Director, TCS, and V. Ramakrishnan, CFO, TCS, announce the company’s results in Mumbai. Photo: Paul Noronha   -  BusinessLine

Q2 profit growth slows down to 1.8%

Macroeconomic issues and a slowdown in the banking sector in the US and Europe, along with delays in retail sector deal executions, slowed down TCS’ second-quarter profit growth to a mere 1.8 per cent.

India’s largest IT services firm on Thursday reported consolidated net profit at ₹8,042 crore for the quarter ended September 30, against ₹7,901 crore in the year-ago period. Sequentially, the profit dipped 1 per cent. TCS’ operating margins for the quarter stood at 24 per cent, while net margins came in at 20.6 per cent.

Revenues grew 5.8 per cent to ₹38,977 crore in the July-September quarter, against ₹36,854 crore in Q2 FY19, as concerns remained in its largest vertical, BFSI.

“Our numbers (in Q2) were lower than what we had expected at the start of the year,” acknowledged TCS CEO Rajesh Gopinathan. “We’ve seen an increase in both deal sizes as well as duration, which is good for long-term growth. But it’ll take time for it to convert into revenues. We would need to deliver H2 much higher than H1 to get to double digits.”

Achieving a better H2, however, will not be easy for TCS. For one, H2 is seasonally weak for IT services, and BFSI is not showing any signs of improvement. Although a further weakness in the rupee could help TCS make up for the lost growth in Q2, it may not be enough to carry it to double-digit growth.

“Insurance, regional European banks and small banks are doing well, but large banks in Europe and the US are under pressure, and there is pressure across the board. In retail, deals have been pushed further than expected. However, since there are no cancellations yet, we hope to convert them in the next few quarters,” Gopinathan said.

From Q1 to Q2 this fiscal, weakness came from retail in US and Europe and markets like India, Japan and APAC, he added. 

There were some greenshoots, however. Digital revenues grew 28 per cent, making up for 33 percent of overall revenues for the quarter. UK grew 13.3 per cent year-on-year, continental Europe grew 16 per cent and the life sciences vertical grew 16 per cent YoY, but not enough to balance the slow growth of 5.3 per cent in the US and 8 per cent in BFSI.

In terms of corporate tax cuts announced by the government, TCS said it will not have any impact on the company as it has decided to continue availing other tax benefits that the government gives. 

From a capital allocation standpoint, TCS has announced to give out ₹40 per share special dividend along with a regular ₹5 dividend this quarter. The statement comes after the government announced a 20 per cent tax on share buyback. TCS said its capital allocation mechanism will be optimised depending on the regulatory framework. 

TCS hired a net 14,097 employees in the quarter, the highest ever onboarded in a quarter. This took the total employee count to 450,738 at the end of the quarter. 

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Published on October 10, 2019
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