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TCS beats analyst estimates to report 4.3% surge in net profit in ‘unusual’ second quarter earnings call

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Tata Consultancy Services, popularly known as TCS, is one of the major IT companies of India, alongside Infosys, Wipro, and others. The tech behemoth recently announced its not so impressive second quarter results, which beat most analyst expectations, but faltered a bit on the revenue front.

Calling it an ‘unusual’ second quarter, TCS still managed to beat margins and net profit growth figures but failed to meet expectations for topline growth. The company reported a net profit of Rs. 6,586 crore(approx. $987 million), which is a 4.3 per cent increase from Rs. 6,317 crore in previous quarter. It also marks a stready 8.8 per cent growth as compared to the corresponding quarter last financial year.

In addition, the revenue numbers might have shown a promising 7.8 per cent rise in Y-o-Y numbers but it slipped 0.1 per cent as compared to previous quarter. The revenue figures now stand at Rs 29,284 crore, which is lower than the market estimated growth of Rs. 29,749. The company reported earnings-per-share at Rs. 33.43.

Also, the sequential growth of the company has been fairly slow for the past financial years, with this quarter being one of the slowest. TCS reported the second quarter growth rate at 3.5 per cent sequentially in constant currency. This growth was led by a strong demand for business agility in European and Asia-Pacific markets, while the Indian and Latin American continued to show volatility.

During this quarter, ended Sept’16, the company managed to deliver digital revenues at 16.1 per cent while operating margins increased 90+ basis points to reach 26 per cent. This growth was led by life sciences and healthcare which grew at 4.7 per cent, followed by energy and utilities(up 3.6 per cent), manufacturing(up 3.1 per cent), travel and hospitality(up 2.3 per cent) and communication(up 2 per cent).

Commenting on the second quarter performance, N Chandrasekaran, CEO and MD of TCS, says,

It has been an ‘unusual Q2’ for TCS. Growing uncertainties in the environment is creating caution among customers and resulted in holdbacks in discretionary spending this quarter.

In additional, volatility in markets like India and Latin America also muted revenue growth. It has been a good quarter from a profitability perspective where despite multiple headwinds our disciplined approach and focus on operations has helped us deliver a strong margin performance.

He continues to add that multiple headwinds currently hindering the continued growth of the company are only temporary. TCS is confident that it will be able to bow down to the aggressive competition and will continue to invest in building IP and solutions as well as talent for the future. It also stated that that growth in Q3 and Q4 of FY17 will be better than last year’s.

On the other hand, Infosys, another home-grown IT behemoth, produced better quarterly results as comared to its arch-rival TCS. The company beat analyst estimates to deliver a 4.9 per cent increase in operating profits, which now stand at Rs. 3,606 crore. But, Infosys has reduced full year revenue guidance considerably to a meager 8-9 per cent citing volatile external environment and near-term uncertain business outlook. This is the second time Infosys has taken this measure to reduce expectations for next quarter, while TCS still continues to fare through the rocky waves.

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