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TCS Q2 results: Profit misses estimates, announces special dividend; here are 7 key takeaways

TCS reported a 1.8 per cent growth in net profit at Rs 8,042 crore for the second quarter ended September 30, 2019, as compared to Rs 7,901 crore in the same quarter last year

TCS Q2 results: Profit misses estimates, board announces special dividend; here are 7 key takeaways

TCS said that it has added 14,097 jobs during the July-September period

IT services bellwether Tata Consultancy Services (TCS) announced results for the September quarter after the markets closed on Thursday, but it disappointed both in terms of revenue growth as well as on profit margins. TCS also announced a dividend of Rs 45 per share, including special dividend of Rs 40 per share.

Profit misses estimate

The country's largest software exporter reported a 1.8 per cent growth in net profit at Rs 8,042 crore for the second quarter ended September 30, 2019, as compared to Rs 7,901 crore in the same quarter last year.

Revenue for the July-September quarter climbed 5.8 per cent YoY to Rs 38,997 crore from Rs 36,854 crore in the same period last year. Revenue growth in constant currency terms stood at 8.4 per cent on a yearly basis.

Dividend announcement

TCS, that kicked-off the earnings season for September quarter, said its board has declared a second interim dividend of Rs 5 and a special dividend of Rs 40 per equity share of Rs 1 each, which will be paid on October 24, 2019 to the equity shareholders of the company.

Contraction in operating margin

In the September quarter, TCS saw its operating margin contract, which is a key indicator of the financial performance of an IT company, due to wage hike, strong rupee against US dollar, high attrition and visa costs. TCS has reported operating profit margin at 24 per cent against 24.2 per cent in the previous quarter and 25.1 per cent in March quarter. The net margin stood at 20.6 per cent.

"We have been gearing up for growth despite the volatility. Our margins in Q2 reflect our continued investments in our people, and in building the capacity we need to fulfill our strong order book," said TCS CFO V Ramakrishnan.

Strong hiring continues in September quarter

TCS said that it has added 14,097 jobs during the July-September period, marking the highest ever employees on boarding in a quarter. The company has hired more than 12,000 people during the April-June quarter. As of September quarter, the consolidated headcount of the company stood at 4,50,738, of which women comprised 36.3 per cent.

"By valuing our employees for the contextual knowledge they possess, and continually investing in equipping them with newer technology skills, we have established an industry benchmark in our ability to attract and retain talent across the world. Their can-do attitude coupled with our progressive, performance-oriented culture is giving us a competitive edge in the market," said Milind Lakkad, Global Head, Human Resources at TCS.

Management sees steady growth despite headwinds

The commentary from top bosses from TCS has been encouraging, which along with strong order book, bodes well for the IT sector. Rajesh Gopinathan, Chief Executive Officer and Managing Director, said: "We ended the quarter with steady growth despite increased volatility in the financial services and retail verticals. We remain confident as the medium and longer term demand for our services continues to be very strong, as evidenced by our Q2 order book - the highest in the last six quarters."

Broad-based growth across verticals

The Mumbai-headquartered firm said that revenue growth was broad-based across verticals, led by 16 per cent growth in life sciences & healthcare division, followed by 11.8 per cent in communications & media segment.

The other verticals such as banking, financial services and insurance (BFSI) grew by 8 per cent, followed by manufacturing (7.8 per cent), technology & services (5.6 per cent) and retail & CPG (4.8 per cent).

Double digit growth in Europe, UK boosted global business

Market-wise, TCS earnings benefitted from 16 per cent growth in Europe business, followed by 13.3 per cent in United Kingdom. North America and Asia Pacific grew 5.3 per cent and 6.5 per cent respectively. Emerging markets showed steady growth - India (7.7 per cent), Middle East and Africa (7.3 per cent) and Latin America (7.3 per cent).

Also Read: TCS Q2 profit up 2% at Rs 8,042 crore, misses estimates

Also Read: India Inc's revenues declines by 3 per cent in Q2 FY20, first time in 14 quarters: CRISIL

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