Home / Companies / Tough quarter for TCS as dollar revenue slumps

Bengaluru: Tata Consultancy Services Ltd (TCS) said quarterly dollar revenues fell 0.3% from the preceding three months as the country’s largest software services exporter failed to snap a string of weak performances over the past six quarters.

At this pace, TCS risks ending this fiscal with the slowest revenue growth since 2009, when N. Chandrasekaran took charge as chief executive.

With the revenue decline in the December quarter, TCS has its work cut out. The firm has to report a 5.25% sequential revenue growth in the current quarter to end this financial year with a 8% growth in dollar terms, which some analysts say is the best-case scenario. That is still much slower than the 15% it recorded last year. Considering that there is little clarity on the pace at which clients will spend on technology, this is a tall order for the company.

“The growth in constant currency terms may be a bit higher, say at 10-11%. But sure, it looks like TCS will miss Nasscom’s guidance of growing at 12-14% in constant currency terms," said the head of research for a Mumbai-based brokerage, requesting anonymity.

The use of constant currency eliminates the effect of exchange rate fluctuations on a company’s financial performance.

On Tuesday, TCS said its dollar revenue for the December quarter was $4.15 billion.

A Bloomberg survey of 33 analysts forecast that the firm would report a revenue of $4.14 billion.

CEO Chandrasekaran put on a brave face. “It’s been a steady quarter, considering we had a lot of headwinds and traditionally it is a weak quarter with a lot of furloughs," he said.

He attributed TCS’s weak financial performance to the seasonal weakness in October-December, when clients temporarily shut down business during the end-of-the-year holiday season, and a slowdown in its India business.

A flood that inundated Chennai in November, stalling the operations of several companies, including TCS, further weighed on its sales.

TCS was the shining star of India’s outsourcing sector until a year ago, growing at a scorching pace that consistently outpaced the industry growth average.

It started losing momentum since mid-2014 when some of its operating segments started facing problems. For one, the company’s financial services business has been sagging and one major reason cited is a sustained slowdown in its UK unit Diligenta Ltd, which provides services to insurance companies.

The persisting weakness in client spending in the energy and utilities business, along with a slowdown in two of its key markets in Latin America and Japan further added to the woes in the last few quarters.

While business in Latin America has bounced back, Chandrasekaran said that it will take another quarter for Diligenta to recover, and a recovery in Japan still looks far away.

Barring the dents, the company said its growth in the third quarter was “holistic" with most industry segments, including life sciences and healthcare, manufacturing and hi-tech, growing sequentially.

Growth in Europe and North America, along with a recovery in Latin America boosted TCS’s international revenue in constant currency terms by 1%.

However, the pace of growth in some of the main revenue generating sectors such as banking, financial services and insurance (BFSI), and retail remained tepid. The BFSI sector grew 0.7% sequentially, while retail grew 0.3% in constant currency.

TCS’s revenue from the BFSI sector has been languishing over the past two years, indicating that the company has been struggling to get more business from big banks.

The BFSI sector now accounts for a little over 40% of TCS’s total revenue, compared to 44% five years ago.

Chandrasekaran waved off any issues in the sector. “I don’t think there are any client-specific problems. The slow growth in BFSI is on account of Diligenta. We don’t spell out the growth of individual sectors like banking and insurance but I can tell you we continue to do well in the banking space," he said.

TCS’s third quarter profit grew more than 14% from a year earlier to 6,083 crore, while revenue grew around 12% to 27,364 crore.

On Tuesday, TCS shares fell as much as 2.61%, touching their lowest level in 52 weeks at 2,301.10. The stock pared some of those losses to close 1.6% lower at 2,324.05 on BSE, while the Sensex shed 0.58% to end at 24,682.03 points.

In the quarter ended December, TCS said its operating margin narrowed 50 basis points sequentially to 26.6%, hit partly by currency fluctuations.

One basis point is one-hundredth of a percentage point.

TCS added 9,071 employees in the three-month period ended December, after adjusting for staff resignations, while roughly 85% of its staff were employed on technology projects.

It also added one new client that will provide more than $100 million in annual revenue, taking the total number of such clients to 34.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Recommended For You
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout