Q1 Results: TCS’ Profit Flat, Margin Narrows On Wage Costs
Tata Consultancy Services Ltd.’s profit remained flat and its margin narrowed to its lowest in eight quarters on higher employee costs in a seasonally strong period.
TCS’ net profit rose 0.1 percent over the previous three months to Rs 8,131 crore in the quarter ended June, according to its exchange filing. That compares with the Rs 7,853-crore consensus estimate of analysts tracked by Bloomberg.
India’s largest software services provider’s revenue rose 0.4 percent to Rs 38,172 crore, meeting analysts’ expectation of Rs 38,476 crore.
“The first and second quarters are seasonally strong,” Madhu Babu, analyst at Centrum Broking said. “If you miss the first quarter revenue, that’s going to lead to some downgrade in (full-year) growth projection.”
Revenue in dollar terms rose 1.6 percent to $5,485 million from the previous quarter, but remained below the BloombergQuint mean of $5,536 million.
Operating profit fell 3.3 percent to Rs 9,220 crore against a forecast of Rs 9,349 crore. Margin contracted 90 basis points to 24.2 percent—the estimate was 24.3 percent. That’s the lowest since 23.4 percent in the first quarter of 2017-18.
Brokerages, including Edelweiss Research, expected rupee appreciation and wage hikes to drag the operating margin down on a sequential basis. Prior to earnings, Citi Research said that the rupee has “not done much” to help software services providers, while higher attrition and a “difficult” visa situation could hurt margins in the first quarter.
The margin is tied to the currency movement, Rajesh Gopinathan, managing director and chief executive officer at TCS, said in a post-earnings press conference. “We have given our salary hikes in the April cycle as usual and that is what gets reflected,” he said on the 90 basis points fall in margin. “We have got the impact of the currency and the impact of the full salary hikes and promotions that have kicked in.”
The company said in its exchange filing that it had added 12,356 employees in the quarter—which was the highest in five years.
Revenue growth on a yearly basis was led by U.K. market’s 16 percent rise, followed by a 15.9 percent in India, and a 15 percent increase in Europe. Other markets showed good momentum, TCS said, with North America registering a 7.7 percent revenue growth, and Asia Pacific at 9.5 percent.
For the quarter-ended June, digital revenue contributed 32.2 percent of the total top line. The company said the segment continues to be their growth driver with more than $7 billion revenue now comes from digital services.
TCS said it’s looking to sustain a double-digit revenue growth in FY20.
The company announced an interim dividend of Rs 5 per share. The record date is July 17 and the payout will be made on July 23.
Shares of TCS closed 2.55 percent lower on the NSE ahead of the earnings announcement compared with a 0.8 percent decline in the NSE Nifty IT index.
Watch the TCS press conference after its Q1 results here: