TCS Q4 profit down 2.5%, subdued BFSI and retail growth drags revenue 0.3% QoQ
TCS lost 1.3 percent in revenue and 40 bps in margin during Q4 due to currency fluctuation.
IT major Tata Consultancy Services' fourth quarter (January-March) earnings were muted as consolidated profit fell 2.5 percent sequentially to Rs 6,608 crore on lower-than-expected growth in topline.
Revenue during the quarter declined 0.3 percent to Rs 29,642 crore QoQ, dented by subdued growth in key segments like BFSI and retail.
However, revenue in dollar terms increased 1.5 percent to USD 4,452 million compared with previous quarter and grew 1 percent in constant currency, mostly led by volume growth (1.7 percent).
TCS lost 1.3 percent in revenue and 40 bps in margin during Q4 due to currency fluctuation, said Rajesh Gopinathan, CEO and MD while addressing press conference.
He further said constant currency revenue growth was 3.4 percent if BFSI and retail excluded. He sees FY18 as an incrementally positive year for the company.
"BFSI (banking, financial services & insurance) had negative growth due to cyclical factors and retail industry has been facing structural challenges but we see strong traction in BFSI and expect it to bounce back strongly from cyclic lows in 2018," he said, adding he expects retail segment to remain volatile & soft through the year.
Revenue from its BFSI segment fell 1.6 percent sequentially to Rs 11,828 crore while retail & consumer business revenue declined 2.9 percent to Rs 4,993 crore in the quarter ended March 2017.
"We are more surprised by the weak revenue performance in financial services (-0.4 percent QoQ in constant currency terms), retail (-3 percent QoQ in constant currency terms) and North America (-1.8 percent QoQ) especially in the context of management’s indication of buoyant spending trends in US financial services clients," Emkay Global said while maintaining hold rating on the stock.
The research house feels TCS' weak revenue performance in US and financial services on the back of Infosys' commentary will certainly dent confidence on pick up in spending in the financial services space in FY18.
Manufacturing business grew 1.7 percent in constant currency, telecom 7.4 percent, Hi-tech 5.2 percent, life sciences & healthcare 3.1 percent, travel 3.6 percent and energy 1.4 percent during the quarter.
In Q4, revenue from North America slipped 1.8 percent and Latin America dropped 7.3 percent in constant currency while UK showed 4.1 percent growth, Continental Europe 7.1 percent and India 9.3 percent.
Numbers more or less missed estimates. Profit was expected at Rs 6,638 crore on revenue of Rs 29,864 crore for the quarter while dollar revenue was estimated at USD 4,479.5 million, according to average of estimates of analysts polled by CNBC-TV18.
The IT services exporter has maintained its margin guidance band of 26-28 percent despite FY17 being lower at 25.7 percent.
EBIT (earnings before interest and tax) during the quarter was down 1.4 percent quarter-on-quarter at Rs 7,627 crore and margin contracted by 27 bps to 25.73 percent, which analysts had estimated at Rs 7,768 crore and 26 percent, respectively.
During the quarter, the company added 1 client in USD 100 million category, 4 each in USD 50 million & USD 20 million and 10 clients in USD 10 million category.
In FY17, it added 11 clients in USD 50 million category, 17 clients in USD 20 million category and 12 clients in USD 10 million category.
At the end of Q4, digital revenue was at 17.9 percent with sequential growth of 7.6 percent. Digital revenue in FY17 grew by 29 percent to USD 3 billion due to accelerating adoption across industries as customers looked to transform their enterprises, the company said in its filing.
TCS further said the company captured significant opportunities in cloud automation, analytics, and IoT with 16.7 percent of total revenues (USD 3 billion) coming from digital services for FY17.
Profit during the year increased 8.6 percent to Rs 26,289 crore while revenue grew by 8.6 percent to Rs 1.17 lakh crore and 8.3 percent in constant currency compared with previous year.
During the year, the company saw broadbased growth across markets with all industry verticals except BFSI, retail and hi-tech growing in double digits.
Among major markets, Europe grew in double digits (13.6 percent) and cross USD 2 billion milestone in revenue followed by North America (7.6 percent) and UK (6.1 percent), TCS said.
Among growth markets, Middle East & Africa (14.8 percent) and Latin America (14.1 percent) led the way while India grew at 10.1 percent and APAC at 5.7 percent, it added.
The attrition rate for IT services fell sharply at 10.5 percent in FY17 compared with 14.7 percent in previous financial year.
FY17 saw addition of 78,912 employees, with a net addition of 33,380 employees, TCS said, adding in Q4, there was a total gross addition of 20,093 employees and net addition of 8,726 employees.
The board of directors has recommended a final dividend of Rs 27.50 per share.The stock price of Tata Consultancy Services, which announced earnings after market hours, closed at Rs 2,308.65, down 0.53 percent on the BSE.