TCS sees biggest quarterly drop in net in two years

Tata Consultancy Services (TCS), India's largest software services firm, on Thursday missed the lowest analyst estimates as it reported a 5.9% year on year fall in its consolidated net profit at Rs 5,945 crore for the first quarter ended June.

The IT major, however, posted a marginal increase of 1% in its consolidated revenue at Rs 29,584 crore in the quarter ended June as against Rs 29,305 crore in the year-ago period.

Analysts had expected Rs 6,200 crore net profit and Rs 29570 crore, according to estimates compiled by Bloomberg.

When compared to the January-March 2017 quarter, its net profit during the period under review fell 10%, while revenue slipped 0.2%.

Rajesh Gopinathan, CEO and MD, TCS, said the company has seen steady growth across industries in the first quarter of the fiscal. "We have had excellent wins across all markets and have a good deal pipeline across industries that positions us well for growth in FY18," he said.

Dollar revenue growth was 3.1% quarter on quarter at $4,591 million.

The rupee has appreciated about 5% this year.

V Ramakrishnan, chief financial officer, said high currency volatility, including sharp rupee appreciation against the dollar, resulted in Rs 650 crore loss in reported revenues during the quarter. "We remain disciplined in our financial management, stay focused on generating strong cash flows and invest in our digital business," he said.

Alok Shende, co-founder and lead analyst at Ascentius Consulting, told DNA Money that the biggest shift at the company right now is the new CEO. "A new CEO takes almost 12-18 months to start performing. We will know in a few days (when other IT companies announce results) if the company was going through transition jitters or challenging industry environment."

The then CFO Gopinathan, who has been with TCS since 2001, took over as the MD and CEO effective February 21, 2017, from N Chandrasekaran, who was elevated as the chairman of Tata Sons Ltd.

According to Sarabjit Kour Nangra, VP-research- IT, Angel Broking, "Impact of wage hikes and visa expenses, apart from rupee appreciation was the major drag on profitability. "

"Despite the impact of wage hikes in the first quarter, TCS continues to drive profitability to its targeted range," Ramakrishnan said.

The Mumbai-based company added 11,202 employees in the quarter. It has said it will increase hiring in the United States and does not plan to cut its investment there.

The IT attrition rate (for the last 12 months) was at 11.6%. "The rate seems to be quite high," Shende said.

Meanwhile, the country's second-largest IT services exporter Infosys is due to report quarterly results today.

The first-quarter IT earnings season may remain grim, given the existing pressures -- transition in the US market under the US President Donald Trump administration as well as rupee appreciation, Shende said. "Until the factors play out their effects completely, it will be a little early to say that IT companies can come out of the doldrums. The wait seems a bit longer."