TCS registers 4.2% rise in Q4 net

Largest software exporter TCS reported a 4.2% growth in March quarter net profit at Rs 6,608 crore and guided towards a better year even though pressure persists in the US and retail sector.

The Tata group company's net profit for fiscal 2017 grew 8.3% to Rs 26,289 crore. Total revenue for the quarter grew 4.2% to Rs 29,642 crore, and 8.6% at Rs 1,17,966 crore for the full year under the Ind-AS system.

Newly-inducted CEO and MD Rajesh Gopinathan termed the numbers as a "fairly satisfying in a challenging operating environment" which included political turbulence with protectionist tendencies in its key market and also currency volatilities where the rupee is appreciating.

"We see fiscal 2018 as incrementally positive and are quite confident about the demand outlook that we see. There are a few verticals that have some lingering pressures, primarily coming from the retail segment," Gopinathan, who took over only in February, said.

He, however, did not give a guidance on the revenue front citing company policy. In what is being seen as representative of the difficulties that the sector faces, TCS' closest rival Infosys had guided towards a slower 6.1-8.1% dollar revenue growth, while industry lobby Nasscom is yet to come out with its yearly growth estimate.

Even though the numbers are a shade lower than the median estimate of some polls, analysts at brokerage Reliance Securities said the results are "in-line" but underlined that the market leader faces a "challenging year ahead".

For the quarter under review, retail and banking & financial services segments -- which contribute over half of its revenues -- have seen fall in revenue.

Gopinathan termed the dip in BFSI numbers as cyclical and said he is not much worried over this below 40% till other sectors are firing, but flagged concerns on retail saying the industry is facing structural issues and TCS will have a "soft" or "volatile" performance in it.

On the US, which is all set to tighten rules on the visa front, HR head Ajoy Mukherjee said the company will have to "tweak" the business model to comply with new laws in its most important market.

Gopinathan said the number of visa applications for 2017-18 will be almost the same as last year, where it had taken them to a third of usual in a strategic shift to low visa applying in face of growing protectionist tendencies. Its operating margin slipped to 25.7% for the quarter, missing the 26-28% target band.

The management attributed this to currency volatility that shaved off 30 bps on margins, but exuded confidence of meeting the targeted band despite the difficulties. Chief financial officer V Ramakrishnan said there will be a 100 bps impact of wage hikes in the June quarter, which is in line with precedents.

Mukherjee announced a lower wage hike of 5-9% for domestic employees, justifying it with the overall outlook and also the fall in domestic inflation. It will be giving a 2-5% wage hike for those outside the country.

Total employee count rose to 3.87 lakh, with a net addition of 8,726 during the reporting quarter.

Deviating from practice, TCS refrained from giving its hiring targets, but Mukherjee said gross hiring will be lower than past years due to falling attrition levels at 10% and increasing automation.

Its digital revenue grew 29% to cross US $3.2 billion in the year and now account for 18% of the total, and Gopinathan said it will continue to grow.

The company is working on remodelling the 'digital umbrella' for ease of operations, he said, stressing that in a few years, everything will be digital and hence, it has trained over 2 lakh employees with necessary skill-sets.

TCS will focus on agile, cloud and automation within the digital opportunity, Gopinathan said, adding it will invest up to Rs 4,000 crore in fiscal 2018. TCS has a good traction in revenue from the market for the full year with a growth of over 10%, but it is very volatile due to a focus on projects, Gopinathan said, adding the stress will be to shift to annuity-based revenues as the market matures.

On cash utilisation, Gopinathan said there is no change in the policy but the board is reviewing the "cadence", hinting at faster payback to shareholders. TCS has announced a full year dividend of Rs 47 a share and Rs 16,000 crore buyback in the year.

Its acquisition policies will also remain the same going forward with a focus on acquiring capability and market access, he said, clarifying that it will not be for people and revenues even though there are difficulties in the US. The TCS counter closed 53 bps down at Rs 2,308.65 on BSE as against a 32 bps slide in the Sensex.