Tata Consultancy Services (TCS) on Thursday reported a muted top line growth for the three months to September, with an increase in constant currency revenues of just 1%, a shade below analysts’ estimates.
Nevertheless, the IT major beat the Street’s profit estimates, reporting a consolidated profit of Rs 6,586 crore, a rise of 4.3% quarter-on-quarter, despite strong currency headwinds due to the depreciation of the pound sterling.
Moreover, the firm reported an increase in operating margins at 26%, up 95 basis points sequentially. Gross margins also rose 80 basis points quarter-on-quarter.
TCS managing director and CEO Natarajan Chandrasekaran said at a media conference the improvement in margins was structural and that the company intended to target a band of 26-28%. Observing that the coming quarters were expected to be better than the corresponding ones for 2016, Chandrasekaran, however, cautioned the US elections were not over. “We can’t make definitive statements about Q3 and Q4 with regard to the impact of macro-environment but they should be better,” the CEO said. He observed it was also difficult to comprehend the impact of Brexit now that the British government has said it would happen by March.
“We do have a currency headwind against the British sterling and we were hit in the September quarter but it is imprudent to make a call on currencies,” the CEO said, adding during this uncertain period it was better to stay close to the ground and watch.
Chandrasekaran believes the outlook for the business remains promising. “The fundamentals are strong, the digital transformation is for real and customers are trying to build real time enterprise,” he noted. However, Q2FY17, he said, had been an unusual quarter with revenues somewhat subdued. “We had said BFSI sector would be soft and it is proving to be so and played out with a growth of 1.2% sequentially. We have to see how the next few months pan out but there are no headwinds in any account or any segment of BFSI. We are in a good place but that is not to say the softness will not continue,” Chandrasekaran observed.
TCS also reported some softness in verticals such as retail but other verticals such as utilities, life sciences and telecom did well. The company reported a negative surprise in India with orders worth R180 crore being delayed to Q3FY17.
While the North America market grew 1.8% sequentially, UK revenues were flat in constant currency terms. The Latin American market, the management, said, was improving. The IT major clocked nine deal wins during the quarter. It added 9,940 people during the quarter. The TCS stock has corrected by 14.8% from the August peak and closed at R2328.50, down 2.17% on Thursday on BSE.