Tata Consultancy profit misses estimates as banks curb technology spending

Tata Consultancy profit misses estimates as banks curb technology spending

MUMBAI (NewsRise) — Tata Consultancy Services, India’s largest software exporter, reported a weaker-than-expected third-quarter profit as clients in banking and retail sectors curtailed technology spending.

Surging investments in new internet technologies and a string of large outsourcing deals had been driving the Tata Group flagship’s growth in the past year, helping it outperform rivals. However, spending curbs by banks across major western markets and a clouded global economic outlook cast a shadow over its growth prospects.

“We saw the sectoral trends of the first half of the year continue to play out in the third quarter,” TCS Chief Executive Rajesh Gopinathan said in a statement.

Still, the Mumbai-based company’s order book in the quarter stood at $6 billion, taking the total value of orders in the first nine months of this year to around $18 billion.

The company said consolidated net profit for the quarter ended in December barely grew to 81.2 billion rupees ($1.1 billion) from 81.05 billion rupees a year earlier. Revenue grew 6.7% to 398.54 billion rupees. Analysts were expecting the company to report a net profit of 81.74 billion rupees, according to Refinitiv data.

Meanwhile, smaller rival HCL Technologies reported a better-than-expected third-quarter profit and raised the lower end of its revenue growth outlook for the fiscal year. It reported a more than 16% rise in net income to 30.37 billion rupees, better than the 27.56 billion rupees forecast in a Refinitiv poll. Its revenue grew 16%.

HCL Technologies expects annual revenue to grow 16.5% to 17.0% in constant currency terms, compared with its October prediction of 15% to 17% expansion.

The company now crossed a revenue run rate of $10 billion this quarter, C. Vijayakumar, president and chief executive of HCL Technologies, said in a statement.

HCL, backed by billionaire Shiv Nadar, has been growing faster than some of its larger rivals thanks to the string of acquisitions and partnerships it struck in the past two years.

Meanwhile, TCS saw the pace of growth in its banking and financial services business that accounted for a third of its total revenue steadily declining over the past few quarters. The sector reported a 5.3% expansion in the third quarter for the company, compared with 8%, 9.2% and 12% respectively, in the previous three quarters. Revenue from the retail business grew 5.1%.

The financial services sector in the U.S. and the U.K. are “structurally challenged,” TCS CEO Gopinathan told reporters at a news conference in Mumbai. He said while the clients in the sector have not reduced their budgets, they are trying to optimize their investments in technology.

In October, Gopinathan had warned that he does not expect growth to accelerate in the next two quarters. TCS’ performance in the third quarter raises doubts over the company’s ability to post a double-digit revenue expansion this fiscal year ending 31 March. In July, it had said it remains focused on maintaining the double-digit growth momentum seen in the last fiscal year.

Analysts were expecting the industry’s growth rate to moderate this quarter amid seasonal shut downs as well as the trade spat between the U.S. and China and Britain’s likely exit from the European Union without a deal.

Infosys, India’s second-biggest software exporter, last week raised its dollar revenue growth outlook on the back of large deal wins, after reporting a better-than-expected third-quarter profit. In contrast, Wipro, another competitor, saw its profit dip and forecast yet another quarter of weak revenue growth in January-March.

Shares of TCS lost 0.9% in Mumbai trading ahead of its results, while HCL Technologies gained 0.9%. The benchmark S&P BSE Sensex closed little changed.

— Dhanya Ann Thoppil

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