Tata Consultancy Services (TCS) on Thursday reported a net profit of Rs 5,945 crore for the three months to June, a fall of 10% quarter-on-quarter and well below analysts’ estimates. This is the biggest sequential drop in the last two years. Profit was pulled down partly by a Rs 650-crore hit arising out of currency fluctuations.
Revenues at the country’s biggest software services exporter were in line with forecasts at Rs 29,584 crore, although these were a shade lower than in the March quarter. Volumes during the quarter grew well at 3.5% sequentially while revenues in dollar terms were up a reasonably good 3.1% at $4.6 billion.
Operating margins, however, were muted at 23.4%, a fairly big drop of 230 basis points sequentially. A rise in the salary bill dented margins by 150 basis points while currency losses caused a hit of 80 basis points. The company reported an operating profit or Ebit (earnings before interest and tax) of Rs 6,914 crore.
CEO and managing director Rajesh Gopinathan noted currency fluctuations and salary hikes had hit operating margins during the quarter by 230 basis points. “Other than this, we have seen stable profitability. This quarter has been one of transition in which we are trying to stabilise operations with the new leadership team and the new operating model,” Gopinathan said.
Gopinathan said the deal pipeline was strong and the company’s ability to mine customers was good. During the quarter TCS won 11 large deals. “It is difficult to call the demand in the BFSI vertical. There is strong demand from smaller companies as technology is revolutionising the sector though there is distress at the top of the pyramid,” the CEO said.
Ajoy Mukherjee, executive vice-president and global head, human resources, said overall hiring in the current year would be less than last year. “However, hiring is strong and we will be growing in all geographies,” he added.
The total employee strength of the company at the end of Q1FY18 was 385,809 on a consolidated basis with gross addition of 11,202 and net decline of 1,414 employees during the quarter. The total attrition rate was at 12.4% including BPS, with IT attrition at only 11.6%.
Chief financial officer V Ramakrishnan said the high currency volatility including sharp rupee appreciation against the dollar resulted in a Rs 650-crore loss in reported revenues. Currency fluctuations would continue to be a challenge, Ramakrishnan said.