TCS down almost 2 per cent, taking cue from Q1FY18 result

Taking cue from yesterday’s poor quarterly result, TCS opened today with a gap down at Rs. 2389, down by more than 2 per cent. 

TCS failed to impress in the first quarter of financial year 2017-18. The company’s net profit for the quarter stood at Rs. 5950 crore, a 10 per cent sequential decline. Rupee appreciation against the US dollar has resulted in Rs. 650 crore loss in reported revenue.

The EBIT during the quarter declined by 9 per cent to Rs. 6914 crore with corresponding margin contraction of 240bps compared to last quarter. This margin contraction was attributed to wages hike and currency headwinds (Rupee appreciation against the USD).

However, revenue during the quarter inch up by a per cent to Rs. 29584 crore compared to last quarter.

Digital revenue (~19 per cent contribution to overall revenue) during the quarter showed impressive performance and rose 7.6 per cent QoQ.

In the start of FY18, TCS has restructured the industry vertical reporting structure to give more fair view on the annuity based revenues. During the quarter company’s stress verticals BFSI witnessed 2 per cent QoQ growth in constant currency but its contribution to total revenue declined from 40 per cent in preceding quarter to 33 per cent in current quarter. Communication & media segment grew by 3.9 per cent QoQ and energy& utilities 7.6 per cent QoQ.

In terms of geographies, Europe business grew 5.9% qoq, while North America and Latin Americas grew 1.7% and 2.8% qoq respectively.  However, the regional market and others showed 3.6% qoq fall, which can be attributed to weakness in Japan, Diligenta businesses.

IT industry is facing headwinds from various set of things such as industry transition to digital from traditional business and pricing pressure in legacy services. The only verticals which act as a cushion is digital revenues, which is growing at much faster pace. Moreover, increasing US local hiring is expected to result in higher cost of doing business in the US. This coupled with currency fluctuation will continue to abstain margin in coming quarters.

Besides, company’s management expects to drive profitability to their target range despite wages hike in recently concluded quarter. It expects holistic growth across all industry segment in Q1, a strong order pipeline, also closure of large platform-based transformation opportunities to drive the overall growth in the coming quarter.