TCS' Q2 result was behind analyst forecasts as growth was impacted by increased volatility in financial services and retail verticals.
Tata Consultancy Services (TCS) on October 10 reported a 1 percent sequential decline in the September quarter profit at Rs 8,042 crore, missing expectations. The growth was impacted by increased volatility in financial services and retail verticals and miss on margins front.
Profit in the June quarter stood at Rs 8,131 crore. However, the year-on-year growth was 1.78 percent in bottomline.
Revenue in rupee terms grew by 2.1 percent quarter-on-quarter (up 5.8 percent YoY) to Rs 38,977 crore in Q2FY20, the IT company said in its BSE filing.
"We ended the quarter with steady growth despite increased volatility in the financial services and retail verticals. We remain confident as the medium and longer term demand for our services continues to be very strong, as evidenced by Q2 order book at $6.4 billion, the highest in the last six quarters," Rajesh Gopinathan, Chief Executive Officer and Managing Director, said.
The company showed a 0.6 percent sequential growth in dollar revenue at $5,517 million in Q2 and the year-on-year growth was 5.8 percent.
The biggest concern was a slow down in constant currency revenue growth at 8.4 percent (YoY) in Q2FY20 after reporting double digit growth in previous four quarters, which clearly reflected in key segments.
Digital revenue growth dropped to 28 percent in Q2, from 40 percent in previous quarter though its contribution to total revenue increased to 33.2 percent from 32.20 percent QoQ.
BFSI segment registered a 8 percent growth (YoY) in constant currency against 9.2 percent in previous quarter (but higher against 6.1 percent in Q2FY19) while retail & CPG sector growth was 4.8 percent against 8.4 percent QoQ and 15.6 percent in Q2FY19.
"We are seeing softness in larger banks in North America & UK and capital markets. The retail recovery has been pushed back. So we don't have a clear viability on when Retail and BFSI will see a recovery," TCS management in a conference said, adding the company should be able to break into double digit growth in couple of quarters.
The country's largest software services provider's earnings missed analyst expectations on all parameters. Profit was expected at Rs 8,322 crore on revenue of Rs 39,285 crore for the quarter, according to a poll of analysts conducted by CNBC-TV18.
The company declared a total dividend of Rs 45 per share for the quarter, including a special dividend of Rs 40 for the first time since 2014.
On the operating performance front, TCS' earnings before interest and tax (EBIT) for the quarter at Rs 9,361 crore declined 4.2 percent year-on-year and margin contracted 250bps YoY to 24 percent, the lowest in nine quarters, missing analyst estimates of Rs 9,834 crore and 25 percent respectively.
Sequentially the margin declined 15 bps from 24.15 percent in June quarter as company continued to invest in building capacity.
"Our margins in Q2 reflect our continued investments in our people, and in building the capacity we need to fulfill our strong order book," V Ramakrishnan, Chief Financial Officer said.The stock corrected nearly 6 percent in September quarter, but gained 6 percent year-to-date.The Great Diwali Discount!
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