TCS sees muted growth in Q2, cos cut IT spends
Mumbai/Bengaluru: TCS’ second-quarter profit grew marginally to $1.13 billion as it battled austere spending on IT services by financial and retail clients. Revenue grew 5.8% to $5.5 billion, but in constant currency terms the company’s revenue growth slipped to single-digits (8%) after four quarters of double-digit growth.
The September quarter performance, also an indicator of the health of India’s IT services export sector, puts the brakes on TCS’ ambition of hitting double-digit growth this fiscal. Banking, financial services and insurance (BFSI) — the biggest contributor to the company’s revenue — saw flat growth. The retail segment’s growth declined.
“If TCS has to get a double-digit growth rate, then the second half of the fiscal should be better than the first half. As of now, that looks challenging,” said company CEO Rajesh Gopinathan. The second quarter is generally considered a strong one for IT services companies due to increased spending from western clients.
“BFSI continues to slow down. Within BFSI, insurance continues to be an area of strength and we are participating in several opportunities. Regional banks in Europe, smaller banks in North America are doing well. But large banks across Europe, the UK and the Wall Street continue to be under pressure,” Gopinathan added.
North America, the geography from where the company earns the most, saw reduced growth while the UK reported flat growth. Continental Europe, however, saw marginal growth. “In retail, deals are getting pushed, but not cancelled. Closures are taking time,” the CEO said.
TCS’ operating margin narrowed to 24%, the lowest in nine quarters. “This is the second successive quarter when the company has missed estimates on both revenue and margin,” said Harit Shah, senior research analyst, Reliance Securities.