TCS misses Street on US headwinds, fin services unit
Q3 revenue in rupee terms up 1.2% to ₹30,904 cr
BENGALURU: Tata Consultancy Services Ltd (TCS), India’s largest software services company, on Thursday posted December quarter revenue growth that fell short of already downbeat Street expectations, as it battled headwinds in the US and soft demand from financial services clients. In constant currency terms, which eliminate the effects of exchange rate fluctuations, TCS’s revenue in the seasonally weak fiscal third quarter rose 1.3% from the preceding three months.
It’s the 13th straight quarter when TCS has either underperformed or at best managed to match analysts’ estimates in constant currency terms.
Mumbai-based TCS reported dollar revenue of $4.79 billion, a 1% rise from the preceding three months and up 9.1% from the year-ago period. In rupee terms, third-quarter revenue improved 1.2% to ₹30,904 crore from the preceding three months. TCS’s quarterly profit rose 1.1% sequentially to $1.01 billion (₹6,531 crore), up 1.2% from $1 billion in the yearago period.
A Bloomberg survey of analysts had estimated the company to report ₹6,532.7 crore ($1.03 billion) profit on net sales of ₹31,041.7 crore ($4.90 billion).
“TCS delivered a fairly strong Q3, especially in a seasonally weak quarter,” said Rajesh Gopinathan, who took over as chief executive officer of TCS in February after N Chandrasekaran was appointed chairman of Tata Sons Ltd. “Overall, from financial performance perspective, it has been a relatively strong quarter…don’t forget that the 9.1% year-over-year growth is completely organic.”
TCS’s operating margin improved 10 basis points sequentially to 25.2% from 25.1% in the July-September period but was 80 basis points narrower than 26% in the year-ago period. A basis point is one-hundredth of a percentage point.
Still, one encouraging metric in what analysts called a largely listless performance was the fact that the company did almost as much new business in the first nine months of the financial year as it did in all of last year.
TCS added $994 million in incremental revenue in April-December, higher than the $786 million in new business in the same period of the last fiscal year. In 2016-17, TCS added $1.03 billion in new revenue.
This means that TCS, which does not give any quarterly or yearly growth forecast, will certainly grow faster in 2017-18 than the previous year.
TCS’s performance in the third quarter was driven largely by a 2.6% constant currency rise in revenue from clients in continental Europe, which brings about 11.1% of total revenue.
Some of the company’s other smaller industry serving units did well too: revenue from retail and consumer packaging and transportation saw a 6.4% sequential jump, while revenue from energy and utilities saw an 8.5% rise. Both these divisions accounted for 17% of TCS’s overall revenue.
But that was not enough consolation for analysts.
“TCS’snumberscontinuetobe uninspiring and listless,” said a Mumbai-based analyst at a foreign brokerage, on condition of anonymity.