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TCS disappoints on revenue front, but margins beat estimates in Q1

AGENCIES
MUMBAI

Tata Consultancy Services on Thursday disappointed the Street for the fourth straight quarter as revenues missed estimates. India’s biggest outsourcer reported consolidated revenue of $4,036 million against brokers’ poll of $4,054 million in the June quarter.

In constant currency, TCS reported a revenue growth of 3.5 per cent in the June quarter against expectations of 4.4 per cent growth.

The revenue miss is likely to weigh on TCS shares when markets open on Friday because the June quarter is considered to be seasonally strong as clients tend to close budgets by March, after which spending picks up, driving growth for outsourcers.

TCS, however, beat expectations on the profitability front, with EBIT or operating margins at 26.3 per cent in the June quarter against expectations of 25.6 per cent.

Analysts had expected TCS to take a hit in profitability because the company had announced wage hikes in the June quarter. On an average, TCS gave 6-10 per cent hikes to offshore employees and 2-4 per cent hikes to onshore employees starting April 1, 2015.

“Our disciplined approach to all aspect of operations has helped maintain operating margins within our stated range despite hedging volatility and the impact of our annual cycle of salary hikes and promotions,” said TCS chief financial officer Rajesh Gopinathan.

In rupee terms, TCS’ first quarter numbers were above estimates. Net profit rose to Rs 5,709 crore against Reuters estimate of Rs 5,440 crore, while sales jumped to Rs 25,668 crore.

“Demand from our core markets like North America and greater traction for ‘Digital’ solutions in key verticals like financial services, retail and life sciences has driven volumes and growth in Q1,” said N Chandrasekaran, CEO and MD of TCS.

The Mumbai-based company reported a strong volume growth of 4.8 per cent in the June quarter, but analysts suspect that incremental business could have come at the cost of pricing.

TCS’ utilization rate (excluding trainees) rose to 86.3 per cent in the June quarter against 85.4 per cent in the previous quarter. However, attrition rate rose for the fifth straight quarter. On LTM (last twelve months) basis, TCS reported an attrition of 15.1 per cent in the June quarter, a sharp hike from 13.8 per cent in the previous quarter.

TCS shares closed 2.80 per cent lower at Rs 2,522 on BSE, underperforming the broader market that shed 0.4 per cent.

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