TCS Q2 net slips 2 per cent to Rs 6446 cr on banks, retail softness

India's largest software exporter TCS today reported 2.1 per cent dip in net profit to Rs 6,446 crore for the September quarter on softness in banking and retail segments, but gave better guidance based on clientoptimism. The Tata group company had posted net profit of Rs 6,586 crore in the year-ago period.

Its revenue grew 4.3 per cent over last year 3.2 per cent over the preceding April-June quarter -- to Rs 30,541 crore under the Ind AS accounting norms. Retail and banking and financial services (BFS), its biggest industry segments, experienced some softness, but TCS Chief Executive and Managing Director Rajesh Gopinathan said that there is some optimism building up on both.

He said in retail sector, whose contribution to revenues declined to 12 per cent, the company expects improvement inthe next few quarters, but declined to specify a timeline for BFS, which contributes 33 per cent of the revenues, merelysaying that the momentum is positive. Stating that BFS in Europe is doing good, Gopinathan said banks have moved beyond the fear of being disrupted by thefintech firms and are now experimenting on collaborative models, where he claimed TCS has a foothold, and the futureportends better prospects for the company.

From the geographical perspective, the largest market of the US showed some softness, which was attributed byGopinathan to the tech maturity in the market, which is resulting in faster growth in other markets which are catchingup. US' share of revenues has declined to 51.6 per cent from the year-ago's 54 per cent. TCS is the first IT major to report its numbers for the quarter, and performance reviews of its peers like Wipro on October 17 and Infosys on October 24 will be keenly watched.

"The overall sense, when we speak to clients, is returning to optimism, it is measured. People are looking at multiple technologies and how to leverage them," he said. On the margin perspective, the company was able to post a 1.70 per cent improvement to 25.1 per cent on the pre-tax front.

This was on the back of a 1.20 per cent help from operational efficiencies and 0.50 per cent help on account of favourable currency movements. The guidance of 26-28 per cent continued to be elusive, but the company continues to chase the targeted band, TCSChief Financial Officer V Ramakrishnan said, adding that it has not changed its currency hedging policies despitevolatilities in the market.

It added over 3,400 employees on a net basis during the reporting period, up from a fall of 1,400 employees in thepreceding quarter, to take its total strength to 3.89 lakh. Attrition went down further to 11.3 per cent. On a gross basis, the company added 15,868 employees, including 3,725 outside the country. For the first half offiscal, it has hired 6,979 employees overseas.

The company, however, made it clear that even though there is a non-linearity in revenue growth and employeeadditions, it is not considering any layoffs. Gopinathan said the company's variable payouts to employees will be 40 per cent higher when compared to the sameperiod year-ago. Share of the upcoming digital stream grew to 19.7 per cent of the total revenues on the back of a 30 per cent growth. TCS' Human Resources Head Ajoy Mukherjee said 2.5 lakh of its workforce has been trained for the new skillsets.

Gopinathan said the company is close to sealing a USD 50 million deal in offering internet of things solutions. It added one client in the USD 100 million band, and six each in the over USD 50 million, over USD 20 million and USD 10 million bands during the quarter. The company said domestic revenues slipped 6.8 per cent over the preceding quarter and now contribute 6.3 per cent ofthe overall pie.

It expressed "concern" on the government business, blaming the way the contracts are structured andalso the seasonality element which leads to dips in business. On the Epic lawsuit, the company said a strong appeal can be made to superior court to fully set aside a recentruling which reduced damages to Rs 2,745 crore.

It, however, considered that amount as a "contingent liability". The company, which is the crown jewel of the USD 104 billion salt-to-software Tata Group, declared a dividend of Rs7 per share and set October 26 as the record date. Analysts at domestic brokerage Emkay Global said the numbers are ahead of its estimates, welcoming the surge in themargins. The TCS stock gained 1.92 per cent to close at Rs 2,548.55 on the BSE.