Tata Consultancy Services (TCS), India’s largest software exporter, said on Tuesday both fourth quarter (Q4) profits and revenues grew 4.2 per cent to Rs 6,608 crore and Rs 29,642 crore, on the back of improved digital business, but currency volatility impacted its margins in the three-month period.
TCS lost 1.3 per cent in revenue and 40 basis points in margins because of rupee volatility during the quarter. Subdued growth in key verticals such as retail and banking, financial services and insurance (BFSI) pushed the company to post numbers below analyst estimates. TCS’ constant currency revenues grew one per cent — lower than analysts’ expectations of 1.5 to 2 per cent. Bloomberg consensus estimates had pegged the company’s revenues and net profit at Rs 29,893 crore and Rs 6,668 crore, respectively.
Analysts say margins would be under pressure for TCS as business remains subdued.
“It has been a moderate quarter for TCS. The new chief executive officer (CEO) has just come in and he will not cut the margin growth rate in the first quarter, but it will be difficult to achieve 26-28 per cent. This year also the margin is reported at 25.7 per cent. Retail has been softer, as a lot of stores are shutting down in the US. BFSI is impacted by Brexit,” said Madhu Babu, information technology (IT) analyst at brokerage Prabhudas Lilladher. “The industry has accepted seven to eight per cent. Considering that he has not cut the margins, the earnings cut will not be significant. The stock may remain what it is.”
However, TCS CEO Rajesh Gopinathan, who delivered his first results for TCS after taking charge as CEO, said he was optimistic of customers increasing their IT spending, despite concerns over visa restrictions.
“As we look at FY18, N G Subramanian (chief operating officer) and I spent the first two months visiting customers primarily in North America, Europe, and APAC (Asia-Pacific). A very common theme that we are hearing from all of them is a very strong focus on digital and continuing investments and technology transformation agenda, which play well into TCS’ core strengths,” Gopinathan told reporters.
“We continue to stay focused on digital. We are focusing on three themes — agile, cloud and automation — and we see these playing out. We see FY18 incrementally positive and quite confident about demand outlook. Retail and high-tech verticals have been soft. BFSI is expected to bounce back,” he said.
Gopinathan’s positive outlook has been contrary to executive comments at rival Infosys, which sees macro-economic challenges, technology shifts and countries such as the US pushing for local jobs slowing businesses. TCS does not give revenue forecasts.
TCS grew 8.5 per cent in dollar terms in 2016-17 on a larger base, going past Infosys, which grew 7.4 per cent. The firm said FY17 profits grew 8.6 per cent to Rs 26,289 crore on revenues of Rs 1,17,966 crore, which, too, grew 8.6 per cent.
Infosys has projected a growth rate of 6.5-8.5 per cent in FY18, indicating that the company is back to its lower growth numbers before Vishal Sikka, its chief executive, was hired from business software maker SAP to transform the company.
TCS and its smaller rivals have maintained that any push for visa restrictions by the US and other countries would be met by hiring local engineers.
“We are hiring locally in all geographies. The last few years’ hiring onsite has been higher. We are going more and more towards a less visa-dependent business model,” said Ajoyendra Mukherjee, head of human resources, TCS. “As far as wages are concerned, we will have to wait and see. We will tweak our model in order to ensure that we remain compliant and at the same time meet customer demands.”
The TCS stock closed Rs 12.2 or 0.53 per cent down at Rs 2,308.65 on Tuesday on the BSE, when the Sensex was down 94.56 points, or 0.32 per cent, to close at 29,319.