The net profit declined 2.6% sequentially to Rs 9,008 crore below Bloomberg consensus estimates of Rs 9,390.94 crore.
Tata Consultancy Services (TCS), the country’s largest software services exporter, on Thursday disappointed with its first quarter performance as it missed street estimates on all fronts, impacted by a sharp 14% decline seen in the India market. While the constant currency (CC) revenue growth of 2.4% was weaker sequentially from 4.2% in March quarter, attrition during the quarter surged 140 basis points.
The net profit declined 2.6% sequentially to Rs 9,008 crore below Bloomberg consensus estimates of Rs 9,390.94 crore. The revenues during the quarter increased by 3.9% sequentially to Rs 45,411 crore, which was almost in line with Bloomberg consensus estimates of Rs 45,755.04 crore.
Operating margins stood at 25.5%, which was 135 basis points lower sequentially. The decline in margins had a
170 basis points impact from salary increments during the quarter offset by 30 basis points from foreign currency
The company reported an operating income or Ebit (earnings before interest and tax) of Rs 11,588 crore, a 1.2%
sequential decline. It was below analysts estimates of operating income of Rs 11,894.68 crore.
Rajesh Gopinathan, CEO and managing director, TCS said that India bore the brunt of second wave of the Covid crisis which led to weakness in the market and dragged down business performance. “We had not anticipated this impact. India market was significantly impacted and we lost Rs 350 crore revenue from India business.” However, Gopinathan said that the company has seen stabilisation and recovery from end of June and and if the environment continues to improve there will be a bounce back in Q2.
He added that barring India, its core market of North America has seen good growth and deal volumes have remained strong across the portfolio. “We are on course with a double digit growth and that trajectory is not compromised by one-off slide in India business,” he said.
To be sure, TCS witnessed strong traction on customer acquisition and deal flow during the quarter. In aggregate, the company had a TCV of $8.1 billion. On a segmental perspective, all verticals showed good sequential growth. Growth continued to be led by Life Sciences and Healthcare, up 7.3% quarter-on-quarter. Retail and CPG also bounced back to double digit growth, growing 4.4% q-o-q. BFSI was up 3.1%, manufacturing increased 4.8%, technology & services by 5% and communications & media (up 1.7%) also saw significantly improved performance.
Growth was led by North America which was up 4.1% q-o-q, UK by 3.6%, Continental Europe by 1.5%, Latin America by 4% and Middle East & Africa up 4.2%. The pandemic’s second wave impacted sequential growth in India which declined 14.1% and Asia Pacific remained muted with 2.4% growth.
Samir Seksaria, chief financial officer, TCS said, “Despite the headwinds and sequential decline we are coming at highest margins for Q1. It is impacted by softness in other markets, while our core markets remain strong. We are confident that we will sustain our margins in the aspirational band that we have set for ourselves”.
On the HR front, TCS’ added 20,409 employees to its rolls on a net basis, its highest ever net addition in a quarter. The total headcount stood at 5,09,058. However, the attrition rose by 140 basis points to 8.6% during the quarter.
Milind Lakkad, chief HR officer,
TCS said the attrition is artificial due to pandemic. “It is part of our operating model, and even if it goes to double digits we are not worried. This will not impact margins,” he said.