TCS sees muted growth in Q2, cos cut IT spends

The Times of India (New Delhi edition) - - Times Global - TIMES NEWS NET­WORK Fig­ures in US dol­lar terms 15

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.

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