10 takeaways from the Q1 of TCS
TCS Q1 revenue rose 3.7% to $4.36 billion, meeting analysts’ estimates. Its net profit declined 0.4% to RS 6,317 crore.
Brexit Concerns: With over 27% of its revenue coming from Europe, and 16% just from the UK, Brexit was on everyone’s mind. TCS CEO N Chandrasekaran faced several questions on the impact of Britain’s exit from the European Union but said the company would have to wait and watch and that he had ‘no specific caution’ to issue.
Revenue and profit: TCS Q1 revenue rose 3.7% to $4.36 billion, meeting analysts’ estimates. Its net profit declined 0.4% to RS 6,317 crore, less than expected as it managed to mitigate its margin contraction.
Margin Contracts: Despite the fact that TCS’ margin contracted less than expected, it was a bad performance on that metric for the company. It has often stated it targets a 26-28% margin band, but its first-quarter margin was 25.1%. The contraction was due to wage hikes, but TCS has been able to offset those in the past. More worryingly, is the possibility that the company might have to relook at its margin band should Brexit really begin to hurt.
BFSI Worries: BFSI revenue rose just 1.7% sequentially in constant currency terms, far less than the company growth rate and nearly half the growth posted in the same period last year. Rivals Cognizant and Infosys had flagged weakness in the sector but TCS had shrugged off those concerns. CEO Chandrasekaran attributed the slowdown to macro problems and said a lack of clarity around Brexit might make it worse.
Client Additions: TCS said six more clients now contributed more than $20 million in revenue and four more clients contributed more than $50 million. It added no new customers to the $100 million band, for the first time in seven quarters.
Digital Revenue: Digital business now accounts for 15.9% of TCS’ revenue, up from 15.5% in the fourth quarter. Though the company does not break out exactly what it counts as digital or how many employees service those ‘digital’ contracts, it did say that more deals included a digital component.
India Growth: India revenue rose 8.5% sequentially, helped by stronger IT spending by corporates. Last quarter, TCS said India revenue had crossed $1 billion, about three-quarters of which is spending by private enterprises. The India business has been choppy for the company.
Headcount and Attrition: TCS said its attrition rate fell to 13.6%, the lowest in several quarters as it took steps to control the loss of employees. The company ended the quarter with 362,079 employees and a gross addition of 17,792 employees. Gross addition fell from the fourth quarter, when the company added 22,576 employees.
Geographies: The company’s North America business grew 2.5% sequentially, the UK grew 3.8% and continental Europe grew 4.6%
Verticals: Though even retail grew at 2.7%, less than the company’s average, other verticals helped offset the disappointing growth in TCS’ two largest verticals. Manufacturing grew 3.1%, Communication and Media grew 7% and Life Sciences grew 3.9%, Energy and Utilities, which had posted muted growth because of the slumping oil price, grew 7.4%