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Mumbai: India’s top software services exporter Tata Consultancy Services (TCS) reported first-quarter revenue that missed Street estimates, as spending in the key banking and financial services segment slowed.
The company said performance in the ongoing quarter will be key to meeting its target of double-digit growth for the full year.
The Mumbai-based company, which reported results after market hours on Tuesday, said revenue grew 11.4 per cent year-on-year to Rs 38,172 crore, or $5.48 billion, which was 10.6 per cent higher in constant currency terms.
Sequentially, the company’s revenue rose 1.6 per cent, missing analysts’ expectations of more than 2 per cent growth.
Revenue from banking and financial services rose 0.4 per cent in dollar terms, far below the company average.
Revenue from smaller verticals - lifesciences and healthcare - grew at 18.1 per cent y-o-y.
Profit rose 21.3 per cent to Rs 8,131 crore, or $1.16 billion in dollar terms, bettering analyst expectations.
“In the short-to-medium term, we don’t see anything new out there (in terms of macroeconomic headwinds).
But we have to see how Q2 pans out.
Whether that gains momentum or whether we can ride it out, we will need to see,” CEO Rajesh Gopinathan said during an analysts’ call.
“If Q2 comes in strong, as it generally does, we will be on the path for double-digit (growth) but if it doesn’t, we will push it to the second-half, which is not generally strong.”
TCS had said it was seeing growth issues in European banking and capital markets and that concerns had increased as the first quarter progressed.
Analysts have been worried that muted spending in the BFSI segment, which contributes over 30 per cent to Indian IT revenues, would drag down growth.
“We were not looking for acceleration in growth.
We were looking at maintaining stability in growth at this level,” Gopinathan said at a post-earnings press conference, adding growth had been weaker than what it had expected at the beginning of the quarter.
Margins contracted 88 basis points from the same period last year to 24.2 per cent, as a strengthening rupee and wage hikes for employees hurt profitability.
“TCS reported a mixed bag in 1QFY20, with revenue coming in below expectations led by a subdued BFSI performance, while margins were largely in-line,” said Harit Shah, an analyst with Reliance Capital.
“Digital revenue continues to grow at a healthy pace, and attrition remains under control.”
TCS said it had signed up contracts worth $5.7 billion in the three months to June.
“Growth across industries is also reflected in healthy client metrics.
Customers from whom we make over $100 million a year have increased by four and we now close with 44 customers from whom we make over $100 million a year,” said Gopinathan.
The company added a net 12,356 employees, the highest in the last five years.
“In terms of employee addition we have had the highest net addition in this quarter as we significantly accelerate our employee onboarding… We had made offers to 30,000 freshers and we are in the process of onboarding all of them,” he said.
On the impact of the budget proposal to hike public shareholding in listed companies to 35 per cent from 25 per cent, Gopinathan said, “We are not going to be issuing fresh equity to meet the cap.
I can say that.”
The TCS stock closed 2 per cent lower in a market that ended flat on Tuesday.
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TCS misses Q1 estimates, but says on track for double-digit growth
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