The wait for better days is getting longer for TCS’ investors. In the June 2017 quarter, revenue growth in constant currency terms was 2 per cent against analysts’ estimate of 2-2.4 per cent ; growth in its largest market – North America – was reported at 1.7 per cent. There was only one new client added in the $100 and $50 million-plus bucket.

The BFSI and retail verticals have reported a sequential constant currency growth rate of 2.3 per cent and 2 per cent, respectively. But, given that there has been a re-classification of verticals, and, there is a new ‘regional markets’ segment now, there is no like-to-like comparison.

The ‘regional markets & others’ vertical covering projects in India, Middle East, Japan and Diligenta (TCS’s UK arm) which see volatility in revenues every quarter, reported a sequential decline of 3.6 per cent drop in revenue in constant terms in the June quarter.

Rajesh Gopinathan, Managing Director and CEO, indicated in the press conference that the retail vertical continues to be under stress and there is no material improvement or deterioration in the BFSI vertical. Earlier in the March 2017 quarter, the BFSI segment had reported a 0.4 per cent decline in revenue and the retail segment saw a sharp 3 per cent decline, sequentially.

Rise in attrition

The attrition came at 11.6 per cent in the June 2017 quarter, up from 10.5 per cent in the March 2017 quarter. The hike for the employees in India were to the tune of 5-6 per cent, effective April. The disappointments in pay hike could have added to attrition seen in the June quarter.

TCS is also going slow in adding new employees . Gross additions in the June quarter was 11,200, down from 20,093 in the March quarter. On net basis, the employee count at the end of the June quarter was lower by 1,414 compared to the March quarter number. The company refutes that it is sign of a slowdown in revenue and attributes it to improvement in productivity.

The company said that it has trained 2,15,000 employees in digital solutions, and, these employees will drive overall productivity improvement.

Operating margins drop

The company’s operating profit margin stood at 23.4 per cent in the June quarter, down about 230 basis points over the March 2017 quarter. This is attributed to higher employee expenses (contributed to 150 basis points fall in margins) and cross-currency fluctuation (80 basis points).

Challenges on the revenue front continue due to large clients still not releasing their budgets; on the other hand, the rupee is continuing to remain strong. Thus, margin pressure for IT players may not subside in the near term. TCS, however, continues to remain optimistic that the margins will move to 26-28 per cent.

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