TCS Q3 results fail to meet expectations

India's largest Information Technology (IT) service company Tata Consultancy Services (TCS) announced its quarterly results spanning over a period of nine months, on Tuesday. It's performance in traditionally weak December quarter was pretty steady, barring the decline in its India business. The company has missed the revenue estimates for the sixth quarter in a row.

On financial front the consolidated net revenue from operations of TCS reached Rs 27364 crores in Q3FY16 compared to Rs 24501 crores in Q3FY15, an increase of 11.68 per cent year on year (YoY). The EBITDA stood at Rs 7715 crores this quarter, as compared to Rs 7048 crores in Q3FY15, an increase of 9.47 per cent YoY. The EBITDA margin this quarter stood at 28.19 per cent, as compared to 28.77 per cent in Q3FY15. The employee expenses of company increased by 13.52 per cent YoY to Rs 10598 crores from Rs 9336 crores in Q3FY15. The net profit stood at Rs 6083 crores in Q3FY16 compared to Rs 5327 crores in Q3FY15, an increase of 14.19 per cent YoY. The revenue of the company in USD terms increased by 5.5 per cent YoY to USD 4145 million. The constant currency (CC), revenue growth stands at 9.9 per cent YoY.

On sequential basis the revenue from operations of company in Q3FY16 increased by 2.87 per cent QoQ. The EBITDA and net profit decreased by 1 per cent and 0.02 per cent QoQ. The EBITDA margin declined to 28.19 per cent in Q3FY16 from 28.68 per cent in Q2FY16. The net profit margin declined to 22.23 per cent from 22.40 per cent in Q2FY16.

The company's international business and most of the business lines, except for energy and utilities showed an upward graph. In constant currency (CC) terms the company's international business has grown smartly with North America and Europe leading the way among major markets; and Latin America amongst growth markets. Latin America business grew by 16.3 per cent Q-o-Q; followed by North America with 1.25 per cent; and Continental Europe 0.6 per cent; while UK revenue declined 3.3 percent.

It's India business fell by 8 percent this quarter due to Chennai floods, which had a material impact on revenue during December quarter. Chennai is one of the company's largest delivery locations, with over 65,000 employees. The revenue growth was also impacted on account of continued weakness in Diligenta (its insurance business), in Japan and India.

Further TCS also informed that its Digital business, which contributes 13.7 percent of total revenue will remain the core focus for Enterprise IT in 2016. Digital business registered a 4 percent sequential growth during the quarter.

TCS bagged nine deals during the quarter, including three each in North America & Europe; and two in Latin America. It has also declared a third interim dividend of Rs 5.50 per share. Reacting to the market's anticipation of the Q3 result, the stock fell and TCS hit a fresh 52-week low of Rs 2,301.10 on Tuesday before the results came out. The stock of the company is trading at Rs 228,1 a decrease of 1.85 per cent from previous close.