TCS disappoints with a 14.2% rise in net profit; warns of bad FY17

Mumbai: Software major TCS on Tuesday reported a lower-than-expected 14.2 percent growth in net profit at Rs 6,083 crore for October-December quarter and warned of a not-so-rewarding final numbers for the fiscal year.

The Tata group company's revenues rose by 11.7 percent under the Indian GAAP system of accounting over the past year to Rs 27,364 crore.

On a constant currency basis, growth was only 0.5 percent on a sequential basis due to an impact on its domestic revenues, TCS Managing Director and Chief Executive N Chandrasekaran told reporters here.

The pre-tax margin corrected by 0.46 percent on a sequential basis to 26.4 percent and the company asserted that it will continue to remain in the comfort band of 26 to 28 percent.

The below-street-view December quarter numbers, which normally is the worst quarter for software exporters due to the long holidays in the West, come after the not-so-rosy first half for the company.

Though the company officially does not offer any guidance, Chandrasekaran sounded cautious on the full-year numbers saying the revenue is not going great guns.

"Definitely the revenue is not growing as fast as last year because we have already done nine months. The only surprise this year is the combination of furloughs and the Chennai floods, which made Q3 much more weaker than what Q3 normally is," Chandrasekaran said.

Though he attributed the lower-than-expected numbers to the loss of business arising from the floods in Chennai during the quarter, he did not quantify the losses on margins.

TCS had set aside a whopping Rs 1,300 crore to help its employees hit by the floods to offer interest free loans and salary advances.

Analysts at the domestic brokerage Angel Broking said the numbers are "lower than expected" but retained its buy call but added that it will be revising its target price on the country's most valued stock.

In anticipation of the numbers, the TCS counter closed 1.65 percent down at Rs 2,324.05 on the BSE, as against a 0.58 percent correction in the benchmark Sensex.

The digital business, an emerging opportunity in an otherwise volatile market, witnessed a 4 percent growth in revenues on a sequential basis and now accounts for 13.7 percent of the revenue pie.

Chandrasekaran beamed that the company will do better than the targeted USD 5 billion revenue from the digital stream by 2017-18, but declined to quantify.

Chandrasekaran further said things look better for the next fiscal, and said he has not heard anything adverse yet from the clients.

He said Diligenta, the England-based company doing work on insurance it acquired, will take at least one more quarter to stabilise, and also conceded to issues surrounding integration of a joint venture in Japan in association with Mitsubishi Corporation.

He said all the business verticals, excluding energy, are performing well, while on the geographies, barring the volatile Latin American region, its key markets in North America and Europe are doing well.

On the massive hike in the H1B visa fees by the US, Chandrasekaran said this isn't a "big concern" and it will use its resource deployment model to mitigate some of the impact.

"We have an idea about what the impact will be, based on the trend, but we need to see going forward our resource deployment model to mitigate some of that. So we have got multiple options, I would not overly write that as a big concern," he added.

Similarly, he also said the company is not concerned about any the evolving macro issues like the troubles in China.

On the domestic business, Chandrasekaran said TCS always expects a pick-up, but has been forced to restrict its reliance on it.

As against a peak of 13 percent of revenues, it now contributes only 6 percent, he said.

During the reporting quarter, TCS added 22,118 employees to take the total headcount to 3.44 lakh. The utilisation excluding trainees stood at 84.9 percent and the company was also able to reduce its attrition to 15.9 percent from 17 percent.

The company added one client in the over USD 100 million revenue band, and two in the over USD 20 million revenue band, it said in statement.

On its acquisition strategy, Chandrasekaran said it will be interested in companies in either Europe and North American markets and sectors like life sciences in the Americas, while also being keen on IP-led companies.

Chandrasekaran said while details of how clients are shaping up their spending budgets for 2016 are still awaited, the company is confident that they will continue to invest in IT.