TCS misses estimates, Q1 net profit dips to ₹5,950 cr
Tata Consultancy Services (TCS), India’s biggest software services exporter, missed first-quarter profit estimates on Thursday as a stronger rupee hit revenue. Consolidated net profit fell to ₹5,950 crore ($923.20 million) for the three months to June 30 from ₹6,318 crore a year earlier, TCS said.
That was short of the ₹6,181 crore expected by analysts, Thomson Reuters data showed.
Chief financial officer V Ramakrishnan said in a statement that the rupee’s appreciation against the dollar had meant a loss of ₹650 crore ($100.87 million) in reported revenue.
The rupee has appreciated about 5% so far this year.
At the heart of TCS’s underperformance is the company’s inability to generate more business from its largest customers, banks, in its largest market, the US. TCS’s banking, financial services and insurance (BFSI) segment, which accounts for over 33% of its revenue, grew 5.1% from a year earlier in constant currency terms. North America, which brings 52.5% of its business, reported a 3.5% rise.
TCS CEO and MD Rajesh Gopinathan said the company has seen growth across industries in the first quarter of the fiscal.
“We have had excellent wins across all markets and have a good deal pipeline across industries that positions us well for growth in FY18,” he added.
The company has announced interim dividend of ₹7 per share.
The software major 11,202 (gross) employees during the quarter under review, taking its total headcount to over 3.85 lakh.
“Revenues shade light of expectations, but margin miss significant,” HSBC analyst Yogesh Aggarwal said in the first note to clients after the company declared its earnings.
India’s more than $150-billion software services sector faces headwinds in its biggest market, the US, as clients hold back technology spending due to President Donald Trump’s order for a review of a visa programme for highly-skilled workers.
Indian IT firms use the H-1B visa programme to fly engineers and developers to service US clients. TCS said it will increase hiring in the US and does not plan to cut its investment there.
TCS rival Infosys Ltd is due to report results on Friday.
Like Infosys, TCS’s growth in 2016-17 was slower than in 2015-16: TCS’s revenue growth in constant currency terms was 3.6 percentage points slower than the 11.9% increase in 2015-16. TCS added $1.03 billion in incremental revenue in the year ended 31 March 2017, less than $1.09 billion added in new business in 2015-16 when it reported a 7.1% increase and half of the $2.01 billion in new business added in 2014-15.
Despite falling short of its operating margin forecast of 26-28% in the last financial year, the company’s management had retained this guidance for the current fiscal year.
Besides, both TCS and Infosys continue to shy away from acquiring technology-focused firms. Infosys has not made a single acquisition in last 18 months; TCS has looked away from buying a company since it partnered with Japan’s Mitsubishi Group in 2014. This is important because most large technology firms, including Accenture Plc, are looking at acquisitions to bring in new technology and skill sets.
Shares of TCS meanwhile ended with marginal gains on the Bombay Stock Exchange. The results were announced after market hours.
The stock ended at ₹2,444.05, up 0.20% on the BSE. During the day, it gained 1.30% to ₹2,471.
On the NSE, it rose 0.28% to close at ₹2,446.40.
The company’s market valuation was ₹4,67,861.46 crore.
On the volume front, 0.68 lakh shares of the company were traded on the BSE and over 15 lakh shares changed hands on the NSE during the day.