TCS net profit falls 5.9% in Q1, misses estimates

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Hit by currency fluctuations and continued sluggishness in BFSI and retail businesses, India’s largest software services exporter Tata Consultancy Services on Thursday reported a 5.9 per cent drop in net profit to Rs 5,945 crore in the first quarter of FY18.

The company’s revenue rose a paltry 1 per cent to Rs 29,584 crore during the period, much below the street expectations.

The currency-wage double whammy shaved off the IT giant’s operating margins by 2.30 percentage points to 23.4 per cent, missing the 26-28 per cent target.

The ongoing volatilities in the rupee, which has been appreciating against the dollar in which it bills its clients, dented the bottomline by Rs 650 crore, or 0.80 per cent, on the operating profit margin front, while wage hike for its 3.85 lakh-strong employees shaved off another Rs 650 crore or 1.50 per cent, managing director and chief executive Rajesh Gopinathan told reporters.

In spite of many headwinds in the first quarter, which saw many in the industry giving out pink-slips, TCS on Thursday asserted it has not laid-off any employees.

Sounding optimistic, the industry bellwether said it is hopeful of clocking a larger number of small-ticket deals in the future. “We see a combination of strong demand for smaller projects coming out of newer areas like digital and some amount of very large transformational deals, especially in insurance. As that materialises, we should see a significant change in the environment,” Gopinathan said.

The company’s operating profit margin slipped to 23.4 per cent due to 2.30 per cent currency and wage hike impact. Gopinathan said usually wage hike impact pulls down margins by 2 percentage points, but productivity gains make up for it.

Chief financial officer V Ramakrishnan said TCS continues with its currency hedging strategies despite the reverses in the reporting quarter.

Revenue from the digital stream grew 26 per cent to constitute 18.9 per cent of the total pie and the company is currently doing $3.5 billion per year on the front.

Gopinathan said revenue from cognitive services grew 5 per cent over the preceding quarter, there were two multi-million dollar deals on the digital interactive side, over 20 new engagements on the Internet of Things and a double-digit revenue growth on the newly started cyber security vertical. On the employee front, TCS’ headcount came down by over 1,400 to 3.85 lakh over the past three months, but human resources head Ajoy Mukherjee asserted that there have not been any layoffs unlike at some of its peers such as Wipro, TechMahindra and others.

He, however, said recruitment will be lower this year after the extra-hiring done in the immediate past, and training over 2.15 lakh of its staff in digital skills. Total attrition stood at 12.4 per cent.

TCS added only one client in the $100-million-plus ticket size during the quarter, 12 in the $10-million band and eight in the $1-million billing bucket.

Asked if big ticket deals will keep coming down, Gopinathan said there is no “material change” in deal sizes and they are also witnessing an increase in contract sizes in the digital space.

He said the flow of large deals continues and the company expects to crack one deal on the insurance front through its company Diligenta soon. There was tepidness in growth of both retail and banking, financial services and in insurance with 2 per cent growth sequentially, while life sciences at 4.7 per cent and manufacturing at 3.8 per cent did well.

Among the geographies, the continental Europe fared the best with a 5.9 per cent growth, while the largest market of North America expanded a paltry 1.7 per cent.

Mukherjee said the number of US visa applications were the same as last year, when it had come down in the wake of rising protectionism in that market.

Meanwhile, TCS said it is consolidating its operations in several locations in the country and announced shutters on its Lucknow development centre, which employs 1,000. But he was quick to assert the company will not sack any employee. The management said the teams are being relocated to its Noida centre and that “there will not be any layoffs because of this exercise.”

Gopinathan said the company is undertaking a similar exercise in Mumbai, where it has nearly a dozen facilities, by consolidating all of them into one centre in Thane that would house 25,000 staffers. It has carried out similar exercise in Chennai as well, he said, adding such exercises help in training and experimentation.

The TCS stock closed 0.20 per cent up at Rs 2,444.05 on the BSE. (With agency inputs)

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