Tata Consultancy Services sees challenging H2, misses profit estimates
MUMBAI: Kicking off a muted earnings season, Tata Consultancy Services, India’s top software exporter, missed the September-quarter profit estimates and warned of a challenging second half as many of its clients cut back on spending.
The company’s net profit rose 1.8 per cent to Rs 8,042 crore compared to the year-ago quarter, but missed the average analyst estimate of Rs 8,255 crore, according to Refinitiv data.
Operating margins dropped to 24 per cent from 26.5 per cent. The company said revenue in its key banking, financial services and insurance (BFSI) segment rose only 5.3 per cent to Rs 15,427 crore. Total revenue rose 5.8 per cent to Rs 38,977 crore.
In an effort to calm the investors, the Tata Group company declared a second interim dividend of Rs 5 along with a special dividend of Rs 40.
Ratings agency Crisil warned in a note on Thursday that India Inc's revenue likely fell to a 14-quarter low in the three-months ended September due to a sharp fall in demand across consumption segments.
TCS has historically managed to outperform peers despite a lagging global economy, but had said last quarter that it only expected to “sustain double-digit growth” this fiscal year.
“As of now, the second half of the year looks challenging,” Chief Executive Officer Rajesh Gopinathan said at a post-earnings press conference on Thursday.
Companies like TCS, which earn most of their revenue from servicing European and American companies, have been weighed down by the escalating US-China trade war and uncertainties over Brexit.
“Our strategy is to stay focused on the opportunity and not look at macro so much,” Gopinathan said.
Centrum Broking said TCS will now have 8.2 per cent constant currency dollar growth in the full year, which will be way below its double-digit growth guidance. TCS reported a net addition of 14,097 employees during the quarter, the most in a single quarter.
Share of new age digital revenues grew to 33.2 per cent of the revenue base on the back of a 28 per cent growth.
Gopinathan said he isn’t worried much about the demand environment as a whole as the deal pipeline is still strong, and hinted at “right-sizing” the cost base to improve on the margins.
However, he sounded circumspect about achieving the double-digit revenue growth mark for FY20.
“Seasonally H2 is weaker. If you have to get to double-digits, we will have to deliver a H2 which is better than H1 and as of now it looks challenging, but we are focused on making sure that we participate in all the opportunities that are there and put our best foot forward,” he said.
Gopinathan singled out the retail sector, where revenue grew by only a tepid 4 per cent, as an area which dented the performance the most.
“Incrementally, weakness in revenue is primarily coming from retail. We were expecting much better numbers from retail from the US and England,” he said.
