IT shares dip on disappointing Q4 results by TCS, MindTree

Shares of information technology (IT) companies were trading lower by up to 5% after sector major Tata Consultancy Services (TCS) reported disappointing set of numbers for quarter ended March 2015 (Q4FY15).

TCS, MindTree, Tech Mahindra, Wipro, HCL Technologies, Infosys and Hexaware Technologies were down 1%-5% on the National Stock Exchange (NSE).

At 1308 hours, CNX IT index was down 2% or 240 points at 11,819 compared to 0.80% fall in the CNX Nifty.

Among the individual stocks, MindTree has dipped 5% to Rs 1,138 on the NSE after the company reported 8.6% quarter-on-quarter (qoq) decline in net profit at Rs 128 crore for the quarter ended March 2015, owing to lower growth, cross currency woes and drop in utilization rates. The company had profit of Rs 141 crore in December 2014 quarter.

“MindTree results missed our estimates marginally on USD revenues as well as EBIDTA (earnings before interest depreciation and tax) margins. The net profit was 5% below our estimate led by revenue and EBIDTA margin miss,” said Madhu Babu, analyst at Centrum Broking.

TCS was down 4% at Rs 2,489 after hitting low of Rs 2,470 on the NSE in early morning trade after reported 30% qoq fall in consolidated net profit at Rs 3,713 crore for Q4FY15 mainly due to one-time special employee reward of Rs 2,628 crore. The company had profit of Rs 5,328 crore in previous quarter. Revenues grew 1.6% at Rs 24,220 crore on qoq basis.

Analyst at Nirmal Bang says, TCS 4QFY15 numbers were disappointing. The biggest negative surprise was on the revenue front where on a constant currency (CC) basis revenue growth at 1.6% in USD terms came in lower than our and consensus expectation as well as the mid quarter guidance of around 2.5%.

“We expect slower US dollar (USD) revenue CAGR (compounded annual growth rate) of 10% over FY15E-FY18E versus historical five-year/three-year (ending FY15) CAGR of 19.5%/15.7%, respectively and therefore believe that it should trade at lower multiples than it is doing currently on FY17 EPS (earning per share),” said analyst in report April 17, 2015.