Mumbai: Software behemoth Tata Consultancy Services’ (TCS) profit rose 0.2% year-on-year to 8,118 crore in the December quarter in line with analysts estimates and a shade better than the 8,042 crore reported in the second quarter.

Revenue grew 2.25% sequentially, and 6.7% year-on-year to 39,854 crore. However, client spending across major verticals such as banking, financial services and retail remained a cause for concern.

In constant currency terms, revenue grew 6.8% year-on-year and 0.3% quarter-on-quarter. The management expects to end the year on improved constant currency revenue growth, but double-digit growth may be some time away.

“The cost focus of customers is on structural costs rather than absolute cost reduction. They’re looking at getting more from less. The final optimized cost base will be a net win-win for both the customer and us," said Rajesh Gopinathan, chief executive officer and managing director, TCS, adding that the UK business, which dragged growth in the third quarter due to political uncertainty, should stabilise within the next 2-3 quarters.

The company reported operating margin of 25.6%, while net margin stood at 20.4%. TCS has decided not to separately disclose the share of digital revenues, as these projects are increasingly becoming part of its traditional service areas.

Analysts had expected TCS to report a profit of 8,190 crore, according to Bloomberg. In Q2, the company reported single-digit revenue growth after four successive quarters of double-digit growth, primarily on account of volatility in the financial services sector, missing analysts’ estimates.

V. Ramakrishnan, chief financial officer, TCS, said the company’s ability to expand margins in a volatile environment spoke of the strength of its business model, focus on execution and the high quality revenue it commands on account of the strong positioning in customers’ growth and transformation spends.

TCS’ revenue rose 15.9% in Europe, 10.8% in West Asia and Africa, and 7.5% in the UK. North America and Asia Pacific grew 4.1% and 5.7%, respectively. Revenue growth in India increased 6.4%, and Latin America grew 6.2%.

Revenue growth was led by life sciences and healthcare (17.1%), communications and media (9.5%) and manufacturing (9.2%). Other verticals, such as banking, financial services and insurance, or BFSI (5.3%), retail and consumer packaged goods (5.1%), and technology and services (3.3%) showed modest growth.

The management said that BFSI continued to remain a “challenge" as larger banking clients were still optimizing expenses, while specialized and smaller banks were participating. Retail in North America continued to throw up challenges due to individual business-specific issues. However, the management reiterated that it was gaining market share in BFSI across the globe, especially in Europe and Australia.

Gopinathan said the uptick in the North American equity market is not translating into growth yet, but large transformational deals across the board were still coming in. “Large deals are heavily consulting-driven, but continue to be offered in an integrated way with other service offerings as a key part of our differentiation," he added in response to queries on the share of TCS’ consulting business.

The aggregate total contract value (TCV) for the December quarter was at $6 billion. In the year-ago quarter, margins were lower on increased hiring and higher sub-contracting expense (both indicative of buoyant demand), with $5.9 billion in TCV. Despite facing headwinds in the BFSI and retail verticals, the IT firm had bagged TCV worth $6.4 billion in the September quarter—the highest in six quarters.

While maintaining the lowest attrition levels among its peers, it reported a 12.1% attrition rate, with its headcount coming down by 4,063 to 446,675 employees in the quarter. “Having onboarded over 30,000 trainees in the first half of the year, we worked on driving up utilization in Q3 and had good outcomes. Our client metrics were also very good, with additions across most revenue buckets," said N. Ganapathy Subramaniam, chief operating officer and executive director, TCS.

The IT major also announced an interim dividend of 5 per share for the quarter. The record date for the dividend was 25 January, and the payment date was fixed for 31 January. As of 31 December, TCS had applied for 5,006 patents, and been granted 1,211.

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