TCS Q2 net slips 2% to Rs 6,446 crore on banks, retail softness

Mumbai, Oct. 12 (PTI): India’s largest software exporter TCS today reported 2.1 per cent dip in net profit to Rs 6,446 crore for the September quarter on softness in banking and retail segments, but gave better guidance based on client optimism.
The Tata group company had posted net profit of Rs 6,586 crore in the year-ago period. Its revenue grew 4.3 per cent over last year 3.2 per cent over the preceding April-June quarter — to Rs 30,541 crore under the Ind AS accounting norms.
Retail and banking and financial services (BFS), its biggest industry segments, experienced some softness, but TCS chief executive and managing director Rajesh Gopinathan said that there is some optimism building up on both.
He said in retail, the company expects an improvement in the next few quarters, but declined to specify a timeline for BFS, the larger revenue contributor, where the commentary was limited to saying that the momentum is positive.
Stating that BFS in Europe is doing good, Gopinathan said banks have moved beyond the fear of being disrupted by the fintech firms and are now experimenting on collaborative models, where he claimed TCS is having a foothold, and the future portends better prospects for the company.
From the geographical perspective, the largest market of the US showed some softness, which was attributed by Gopinathan to the tech maturity in the market, which is resulting in faster growth in other markets which are catching up.
“The overall sense when we speak to clients is returning to optimism, it is measured. People are looking at multiple technologies and how to leverage them,” he said.
On the margin perspective, the company was able to post a 1.70 per cent improvement to 25.1 per cent on the pretax gap, on the back of a 0.50 per cent help on account of currency, where dollar has been stable while rupee has depreciated against other currencies, and a 1.20 per cent help on operative efficiencies.
The guidance of 26-28 per cent continued to be elusive, but the company continues to chase the targeted band, TCS chief financial officer V Ramakrishnan said, adding that it has not changed its currency hedging policies despite volatilities in the market.
It added over 3,400 employees on a net basis during the reporting period, up from a fall of 1,400 employees in the preceding quarter, to take its total strength to 3.89 lakh.
Attrition went down further to 11.3 per cent. It, however, made clear that even though there is a non-linearity in revenue growth and employee additions, it is not considering any layoffs.
Gopinathan said the company’s variable payouts to employees will be 40 per cent higher when compared to the same period year-ago.
Share of the upcoming digital stream grew to 19.7 per cent of the total revenues on the back of a 30 per cent growth, and TCS’ human resources head Ajoy Mukherjee said 2.5 lakh of its workforce has been trained for the new skillsets.
Gopinathan said the company is close to sealing a USD 50 million deal in offering internet of things solutions.
It added one client in the USD 100 million band, and six each in the over USD 50 million, over USD 20 million and USD 10 million bands during the quarter.
The company said that revenues on the domestic front were flat and expressed “concern” on the Government business, blaming the way the contracts are structured and also the seasonality element which leads to dips in business.
The company, which is the crown jewel of the USD 104 billion salt-to-software Tata Group, declared a dividend of Rs 7 per share and set October 26 as the record date.
Analysts at domestic brokerage Emkay Global said the numbers are ahead of its estimates, welcoming the surge in the margins.
The TCS stock gained 1.92 per cent to close at Rs 2,548.55 on the BSE.