TCS Q2 scorecard does not lend much comfort

Weakness persists in BFSI and retail segments

TCS reported a 1.7 per cent growth in revenue in constant currency terms, quarter-on-quarter, which is a tad lower than market expectations.

On year-on-year basis, the growth was 7.1 per cent, which is an improvement from 6.3 per cent in the June quarter.

However, the key verticals and geographies haven’t shown any turnaround. Revenue from North America increased just 1.4 per cent sequentially (3.6 per cent, y-o-y) in constant currency terms. The BFSI segment saw revenue grow by 1.9 per cent sequentially, which is down from 2.3 per cent growth recorded in the June quarter. The retail segment saw revenue drop by 0.9 per cent.

Revenue from digital services grew 5.9 per cent sequentially on a constant currency basis. This was a key highlight in the company’s Q2 scorecard.

Given the changing dynamics within the IT sector, the growth of a company will be dependant on the strength of its digital and analytics offerings.

However, given TCS’ modest overall revenue growth over the last two quarters, it is very likely that the company will miss the targeted growth for the industry. Nasscom had estimated a growth of 7-8 per cent in revenues in 2017-18. In the September quarter, the company added only one new client in the $100 million plus bucket.

Margin improvement

Thanks to the weak rupee and also some operational improvement, the operating profit margin for the company expanded in the September quarter. It came in at 25.1 per cent up 170 basis points over the June quarter.

Of this, the company attributes 50 basis points gain to the tail winds from exchange rate movement and the rest 120 basis points from operational efficiencies across the business spectrum.

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