India’s TCS flags weak client spending after Q2 revenue miss
INDIA’S Tata Consultancy Services (TCS) reported weaker-than-expected quarterly revenue on Wednesday (Oct 11) and warned that its clients were still hesitant to spend on discretionary projects amid inflationary pressures and high interest rates.
The company’s consolidated revenue from operations rose 7.9 per cent to 596.92 billion rupees (S$9.8 billion) for the second quarter ended Sep 30, but fell short of the analysts’ average estimate of 602.44 billion rupees, according to LSEG data.
Revenue at TCS’s mainstay banking, financial services and insurance (BFSI) segment, which generates more than a quarter of the total revenue, fell 0.5 per cent on a constant currency basis from a year ago.
TCS CEO K Krithivasan blamed the weakness on the uncertain macroeconomic environment.
“We are able to sign new projects. But (they are) not compensating for the degrowth happening as clients are pausing some of the projects and there are some deferrals. While the order book is strong, it is not reflecting (in) the revenue growth.”
The country’s No 1 IT services exporter said its order book for the July-September period stood at US$11.2 billion, higher than the US$8.1 billion, a year ago.
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TCS marginally beat profit estimates due to cost optimisation, with operating margins rising to 24.3 per cent from 24 per cent a year ago. Net profit rose 8.7 per cent to 113.42 billion rupees (S$1.9 billion), compared with the analysts’ average estimate of 113.17 billion rupees, according to LSEG data.
The Mumbai-based company is the first among its peers to report quarterly results, setting the tone for an industry worth US$245 billion that is staring at an uncertain demand environment in the US and Europe, its key markets.
This comes after the Indian IT firms benefitted from a pandemic-fuelled run that fetched them billions of US dollars worth of digitisation contracts.
“(TCS’ results) indicates the IT services industry is struggling to find anything close to the momentum of 2021 and 2022,” said Phil Fersht, CEO of US IT advisory HFS Research, attributing the weakness to reduced IT spending.
Employee headcount at TCS declined by 6,333 during the quarter, reflecting normalisation in attrition and increased utilisation of existing resources.
Meanwhile, TCS approved a share buyback worth 170 billion Indian rupees (S$2.8 billion). REUTERS
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