TCS profit flat amid client spending worry
MUMBAI: Software behemoth Tata Consultancy Services’ (TCS) profit rose 0.2% year-on-year (yoy) to ₹8,118 crore in the December quarter, in line with analysts estimates and a shade better than the ₹8,042 crore reported in the second quarter.
Revenue grew 2.25% sequentially, and 6.7% y-o-y to ₹39,854 crore. However, client spending across major verticals such as banking, financial services and retail remained a cause for concern.
In constant currency terms, revenue grew 6.8% y-o-y and 0.3% sequentially. The company management expects to end the year on improved constant currency revenue growth, but double-digit growth may be some time away.
“The cost focus of customers is on structural costs rather than absolute cost reduction. They’re looking at getting more from less. The final optimized cost base will be a net win-win for both the customer and us,” said Rajesh Gopinathan, chief executive officer and managing director, TCS.
Gopinathan added that the UK business, which dragged growth in the third quarter due to political uncertainty, should stabilise within the next two-three quarters.
The company reported operating margin of 25.6%, while net margin stood at 20.4%. TCS has decided not to separately disclose the share of digital revenues, as these projects are increasingly becoming part of its traditional service areas.
Analysts had expected TCS to report a profit of ₹8,190 crore, according to Bloomberg. In the second quarter, the company reported single-digit revenue growth after four successive quarters of double-digit growth, primarily on account of volatility in the financial services sector, missing analysts’ estimates.
TCS’ revenue rose 15.9% in Europe, 10.8% in West Asia and Africa, and 7.5% in the UK. North America and Asia Pacific grew 4.1% and 5.7%, respectively. Revenue growth in India increased 6.4%, and Latin America grew 6.2%.
Growth in revenue was led by life sciences and healthcare (17.1%), communications and media (9.5%) and manufacturing (9.2%).
Other verticals, such as banking, financial services and insurance, or BFSI (5.3%), retail and consumer packaged goods (5.1%), and technology and services (3.3%) showed modest growth.