Country’s largest software exporter firm on Thursday reported a 5.9 per cent decline in its consolidated net profit to Rs 5,945 crore for the April-June quarter on wage hike and stronger rupee. while its revenue inched up a paltry 1 per cent to Rs 29,584 crore.
The double whammy of wage hike and stronger rupee shaved off the IT giant’s operating margins by 2.30 percentage points to 23.4, missing the 26-28 per cent target.
In spite of many headwinds in the first quarter, which saw many in the industry giving out pink slips, TCS today asserted it has not laid off any employees.
Sounding optimistic, the industry bellwether said it is hopeful of clocking a larger number of small-ticket deals in the future, as digital gains more currency.
“We see a combination of strong demand for smaller projects coming out of newer areas like digital and some amount of very large transformational deals, especially in insurance. As that materialises, we should see a significant change in the environment,” managing director and chief executive Rajesh Gopinathan told reporters.
The ongoing volatilities in the rupee, which has been appreciating against the dollar in which it bills its clients, dented the bottomline by Rs 650 crore, or 0.80 per cent, on the operating profit margin front, while wage hike for its 3.85 lakh-strong employees shaved off another Rs Rs 650 crore or 1.50 per cent, Gopinathan said.
Accordingly, operating profit margin slipped to 23.4 per cent due to the double whammy of 2.30 per cent currency and wage hike impact, but it sticked to the guidance of 26-28 percent, despite missing it for the second time in a row.
He said usually wage hike impact pulls down margins by 2 percentage points but productivity gains make up for it.
“For the long or medium term, our target continues to be the same but right now the focus is to ensure that the transition (under newer leadership team) goes smoothly; we stabilise into the new operating model and we maintain stable profitability for a future expansion in our margins,” he said.
Chief financial officer V Ramakrishnan said TCS continues with its currency hedging strategies despite the reverses in the reporting quarter.
Revenue from the digital stream grew 26 per cent to constitute 18.9 per cent of the total pie and the company is currently doing $3.5 billion per year on the front.
Gopinathan said revenue from cognitive services grew 5 per cent over the preceding quarter, there were two multi- million dollar deals on the digital interactive side, over 20 new engagements on the Internet of Things and a double-digit revenue growth on the newly started cyber security vertical.