TCS offers mixed bag

Mumbai, Oct. 13: The results season began on a tepid note for the technology sector as revenue growth at Tata Consultancy Services (TCS) lagged analysts estimates because of multiple factors. However, there was some consolation when the country's largest IT services company reported better-than-expected net profit numbers.

TCS posted a net profit of Rs 6,586 crore for the second quarter ended September 30, a 8.76 per cent growth over Rs 6,055 crore in the corresponding period of last year. Analysts had expected the company to post a net profit of around Rs 6,300 crore. The other good news was in the operating margins front which improved to 26 per cent from 25.01 per cent in the preceding quarter.

However, the topline numbers disappointed. Revenues in rupee terms came in at Rs 29,284 crore, which were only 8 per cent higher than Rs 27,165.5 crore in the year-ago period.

On a sequential basis, it marked a drop of 0.1 per cent. In dollar terms, the lacklustre performance was evident when revenues came in at $4374 million, a rise of only 0.3 per cent over the preceding three months.

Analysts had expected TCS to post a sequential revenue growth of at least 1 per cent in dollar terms.

In fact, the dollar revenue growth during the second quarter, considered as a seasonally strong quarter, was much lower than that seen in the first quarter of this year when it rose nearly 3 per cent.

The mood on the Street was not gung-ho ahead of the results as TCS had earlier cautioned that performance during the second quarter may be affected as its financial sector clients in the US were holding back on discretionary spends.

CEO and managing director N. Chandrasekaran was candid when he said that it was an "unusual Q2" for TCS. "Growing uncertainties in the environment is creating caution among customers and resulted in holdbacks in discretionary spending this quarter. In additional, volatility in markets like India and Latin America also muted revenue growth," he said.

Speaking to reporters, Chandrasekaran pointed out that while TCS saw softness in the banking, financial services & insurance (BFSI) vertical in the US, there were other reasons for the subdued growth in revenues as well. This included a negative surprise from India where it saw some delay in orders to the extent of Rs 180 crore. This is expected to come in the third quarter.

Further, TCS also witnessed softness in discretionary spending in the retail sector in the UK and the US.

The TCS CEO, however, hinted that the outlook for the sector remains hazy because of developments like the upcoming US presidential elections, though he was quick to add that companies will continue to spend on technology.

However, other verticals, including life sciences, manufacturing, utilities and energy showed good growth.