Tata Consultancy Services posted disappointing financial results on Thursday with its fiscal first-quarter net profit dropping 10% on-quarter to Rs 5,945 crore, falling short of street expectations, even as India’s largest IT services provider disappointed on the margins. ET Now had forecast a consensus net profit of Rs 6,204 crore, while CNBC TV18 had polled it at Rs 6,195 crore for the quarter. TCS’s April-June revenue in rupee terms at Rs 29,584 crore also fell marginally by 0.2% from the preceding three months, though, it was in line with analyst estimates. Revenue in dollar terms at $4.59 billion rose 3.1% on-quarter, also in line with analyst expectations.
But the major surprise was on the EBIT margin front, with TCS reporting it at 23.4% for the quarter that ended June 30, much below the ET Now’s consensus forecast of 24.3%. The EBIT margin also fell from 25.7% a quarter ago. The company’s EBIT itself at Rs 6,923 crore also missed the expectations.
TCS CEO Rajesh Gopinathan said that the company had seen steady performance in April-June despite challenging global environment. The IT company recorded over 3.5% growth across all segments barring BFSI and retail, Gopinathan said, adding that BFSI grew at 2.3% during the quarter in constant currency terms. Among the company’s other businesses, Retail & Consumer Products Group’s revenue was up 2%; Lifescience & Healthcare was up 4.7%; while manufacturing was up 3.8% in constant currency terms.
Further, Gopinathan sought to assuage growth concerns, by saying that TCS has a good deal pipeline for growth in the current financial year 2017-18. He added that the company remains optimistic on the deal pipeline even as it expects some volatility in the retail segment, which he said is structurally stressed. TCS said it added 8 clients in above $1 million band, and 12 in above $10 million band.
In line with the ongoing stress in the Indian IT industry, Gopinathan said that net hiring in the current financial year 2017-18 would be lower than that in the last fiscal 2016-17. Indian IT industry is reeling under pressure from multiple fronts, from a tightening visa regime in several countries including the US, shrinking client budgets, and increasing competition, leading to significant stress on their margins. TCS said that the hike in wages led to a 150 basis points impact on its first quarter profitability. On the other hand, currency volatility hit the company’s profitability by 80 basis points during the quarter.
As for the new growth areas, TCS said its digital segment sales in April-June rose 7% as compared to the previous quarter. As for IOT (Internet of Things), Gopinathan said that TCS is seeing significant customer traction, and has started 20 new engagements in the area. TCS also declared an interim dividend of Rs 7 per share.