Currency fluctuations and BFSI, retail sluggishness hurt TCS's Q1 show
India’s largest software services exporter Tata Consultancy Services on Thursday reported first quarter results largely below estimates.
India’s largest software services exporter Tata Consultancy Services on Thursday reported first quarter results largely below estimates, hurt by currency fluctuations and continued sluggishness in BFSI and retail businesses.
The net profit during the first quarter ended June fell by 10.1 percent on a quarter-on-quarter (QoQ) basis to Rs 5,945 crore which was below CNBC-TV18 analyst poll of Rs 6,195 crore.
Total revenue declined 0.2 percent on a QoQ basis to Rs 29,584 crores from Rs 29,642 while rose marginally by about 1 percent on a year-on-year basis.
TCS chief executive Rajesh Gopinathan blamed currency fluctuations and one-time impact of salary hikes for erosion in profitability during the quarter. The impact was “150 basis points on salary hike, and 80 bps on currency, leading to a total impact of 230 basis points,” he said.
Margin fell to 23.4 percent from 25.7 percent in the previous quarter.
Gopinathan added that while retail was “structurally stressed,” there was a challenge at the “upper-end” of the banking, financial services and insurance (BFSI) business.
“The decline in top line and bottom line performance by TCS in the current quarter is reflective of current macro economic circumstances of uncertainty, currency fluctuations and shrinkage in IT spending on large global transformational projects, and cannot be considered unexpected in its entirety,” said Sanjoy Sen, Doctoral Research Scholar, Aston Business School, UK.
Indian IT firms have been seeing a slowdown in their business from large banks as they adopt greater automation and newer technology such as blockchain to reduce settlement times.
There has been some commentary of a turnaround in financial services, but that does not seem to have translated on ground.
Retail, which is also a big vertical business for IT service firms, has also been stressed as brick-and-mortar establishments suffer the impact of e-commerce players gaining prominence.
All industry verticals except Retail and BFSI exhibited strong growth at over 3.5 percent sequentially, TCS said in a statement.
Gopinathan, however, said that TCS had “excellent wins across all markets and have a good deal pipeline across industries that positions us well for growth in FY18”.
In the first quarter, TCS also reorganised its service lines and added new ones such as Cognitive Business Operations which grew 5 percent quarter-on-quarter, IoT (Internet of Things) based services that saw high client traction, cybersecurity which had a dobule digit Q-O-Q growth and digital interactive services.
Among its major geographies of business, TCS reported the highest growth in Europe, with growth of 5.9 percent Q-o-Q, followed by North America and UK. Among growth markets, Latin America grew the most at 2.8 percent Q-o-Q followed by India, Asia Pacific and Middle East and Africa.
The management stressed that there were no layoffs taking place at the company. Reacting to a piece about TCS shutting down operations in Lucknow, impacting 2,000 employees, Gopinathan said that all talk of layoffs was “malicious rumour-mongering”, and that the company is consolidating its operations in Noida.
However, Ajoy Mukherjee, Executive vice president and Global Head, Human Resources at TCS said the company would hire fewer people this year, and that lateral hiring would happen on a requirement basis.
“There will be net growth in headcount, we will be positive in almost all geographies we are operating in,” he said.
TCS said the total employee strength at the end of the first quarter was 385,809 on consolidated basis, and net addition of 1,414 employees during the quarter. The total IT attrition was 11.6 percent.The company also said it does not see any visa cost impact this quarter and will continue to evaluate the onshore-offsite mix, hire onsite, and skilling and reskilling employees in digital technologies.