India's TCS flags challenging second half after missing profit estimates

MUMBAI/BENGALURU (Reuters) - Tata Consultancy Services Ltd TCS.NS warned of a challenging second half after India's No. 1 IT services exporter missed September-quarter profit on Thursday, as a slowing global economy forced many of its clients to cut back spending.

FILE PHOTO: Logos of Tata Consultancy Services (TCS) are displayed at the venue of the annual general meeting of the software services provider in Mumbai, June 29, 2012. REUTERS/Vivek Prakash

TCS kicks off India’s corporate earnings season, and in the quarter ended September company profits were expected to be muted, given a slowdown in the domestic economy.

Ratings agency Crisil warned in a note on Thursday that India Inc’s revenue likely fell to a 14-quarter low in the three months ended September due to a sharp fall in demand across consumption segments.

TCS has historically managed to outperform peers despite a lagging global economy, but had said last quarter that it only expected to “sustain double-digit growth” this fiscal year.

“As of now, the second half of the year looks challenging,” Chief Executive Officer Rajesh Gopinathan said at a post-earnings press conference on Thursday.

Companies like TCS, which earn most of their revenue from servicing European and American companies, have been weighed down by an escalating trade war between the United States and China and Britain’s likely chaotic exit from the European Union.

“Our strategy is to stay focused on the opportunity and not look at macro so much,” Gopinathan said.

According to Centrum Broking Pvt Ltd analyst Madhu Babu, TCS will now have 8.2% constant currency dollar growth in the full year which will be way below its double-digit growth guidance.

In the second quarter, the company’s profit rose 1.8% to 80.42 billion rupees ($1.13 billion), missing the average analyst estimate of 82.55 billion rupees, according to Refinitiv data.

Operating margins dropped to 24% from 26.5%, hurt by investments in the company’s digital business and expenses related to hiring.

TCS reported a net addition of 14,097 employees in the three months ended Sept. 30, the most ever in a single quarter.

TCS, a part of salt-to-software conglomerate Tata Group, said it saw softness among large banks across the United States, the U.K. and Europe.

The company - whose clients include the Netherlands-based ABN Amro Bank ABNd.AS, Citigroup UK and Norway's DNB DNB.OL - said revenue in its key banking, financial services and insurance (BFSI) segment rose only 5.3% to 154.27 billion rupees.

Total revenue increased 5.8% to 389.77 billion rupees.

BFSI, the company’s biggest earner, contributed to over a third of its revenue in the last financial year.

Rival Infosys Ltd INFY.NS reports its quarterly numbers on Friday.

Reporting by Derek Francis in Bengaluru; Editing by Maju Samuel