Sluggish BFSI segment crimps margin, pulls TCS net down 3.6%

India's largest software exporter TCS today said its net profit slipped 3.6 per cent to Rs 6,531 crore in three months to December due to margin compression and softness in the banking and financial services sector, which is its largest revenue segment.
The Tata Group company had reported a net profit of Rs 6,778 crore in the December 2016 quarter under the Ind-AS accounting. In July-September 2017, its net profit stood at Rs 6,446 crore.
Revenue from the banking sector, which contributes a third of TCS' overall turnover that grew at a paltry 3.9 per cent to Rs 30,9014 crore, declined by 1.5 per cent from the September quarter, its Managing Director and Chief Executive Officer Rajesh Gopinathan told reporters.

"Banking continues to be an area where we are on a wait-and-watch mode. I would still think we are a couple of periods away from a recovery in this," he said without quantifying growth level at which it will call it a recovery.
North America, its largest market by revenue, also delivered sluggish growth at 2.8 per cent, Gopinathan said and attributed to many factors such as banking customers not investing enough in technology upgrade.
But the company is very optimistic on the insurance segment and also on Europe, which is set to emerge as its second largest market in a year, he said.

In a bold move, TCS, which is the cash-cow for the parent Tatas, said it is not fair to benchmark it against an array of industry-wide guidance and practices, including Nasscom's revenue growth target for every year and also utilisation levels.

Gopinathan said the Nasscom guidance is for the whole industry and was relevant till about five years ago.
It can be noted that for the nine months to December, TCS revenue has grown 3.1 per cent to Rs 91,029 crore as against the Nasscom guidance of up to 9 per cent revenue growth for the USD 154-billion sector.
On client budgets, Gopinathan said half of the new business wins are not based on client budgets per se.

The agility in working, wherein staff is easily moved in or out of projects, has made it move away from reporting the utilisation numbers. Attrition that moved down to 11.9 per cent is enough to understand the utilisation levels, he said.
On margins, which contracted by 0.80 per cent on a pre- tax basis to 25.2 per cent, Gopinathan said as much as 70 bps of this came from currency headwinds excluding which it would have almost met the lower-end of its "aspiration" to get the margins in the 26-28 per cent band.
The upcoming digital areas saw a 39 per cent growth and is now a USD 4-billion revenue stream on an annualised basis, he said, adding it now accounts for 22 per cent of the overall revenue which will go up to 100 per cent eventually.

Seeking to allay the concerns on digital income, Gopinathan said TCS has bagged the biggest-ever deal on digital and said such deals aren't bad from the point of view of spreads.
Though Gopinathan said the deal pipeline is "strong," he refused to quantify saying it's early days to get a visibility on client budget.
The company hired a net of 1,667 employees during the quarter to take the total headcount to 3.90 lakh. Human Resources Head Ajoy Mukherkjee admitted that net additions so far during this fiscal are much lower at below 4,000, but attributed this to the higher base last year in anticipation of the changing technological landscape.

The company welcomed the latest pronouncements from the US on the H1-B visas, but pointed out that the issue is not closed fully as a few detrimental bills are stilling pending for Senate approval.
"TCS' performance is in line with the expectations. The industry will remain under pressure till 2020 as in this era of creative destruction where cannibalisation of revenue due to automation, changing business models and cut-throat competition are keeping businesses under pressure," analysts at industry consultancy Gartner said.
TCS shares, which scaled new life-time highs yesterday and intra-day today, closed 0.67 per cent down at Rs 2,788.40 on the BSE, as against a 0.20 per cent jump in the benchmark.