TCS Shares Drop Nearly 4% After Q2 Earnings Miss Estimates

Tata Consultancy Ltd (TCS) shares dropped nearly 4% in early trade on Friday after the IT bellwether reported subdued revenue and profit growth for the second quarter ended September (Q2) after the market trading hours on Thursday.

At 10:04 am, TCS shares were down 2.6% to Rs 1,951.80 apiece, after hitting an intraday low of Rs 1,925. Notably, the stock has corrected nearly 6% in the September quarter, but gained 6% year-to-date.

TCS on Thursday reported a 1% sequential decline in the September quarter profit at Rs 8,042 crore. Meanwhile, revenue in rupee terms grew 2.1% quarter-on-quarter to Rs 38,977 crore. Profit was expected at Rs 8,322 crore on revenue of Rs 39,285 crore for the quarter, according to a poll of analysts conducted by CNBC-TV18.

In dollar terms, revenue stood at $5,517 million in the September quarter, up 0.6% sequentially and 5.8% on a year-on-year basis. The key takeaway was TCS reporting constant currency revenue growth of 8.4% year-on-year in the September quarter after witnessing double-digit growth in the previous four quarters.

As expected, increased volatility in the banking and financial services industry (BFSI) segment weighed on performance. The segment registered 8% y-o-y growth in constant currency compared with 9.2% growth in previous quarter. The retail and CPG (consumer packaged goods) sector y-o-y growth was also tepid at 4.8% in Q2 against 8.4% in Q1 and 15.6% in the year-ago quarter.

“We are seeing softness in larger banks in North America & UK and capital markets. The retail recovery has been pushed back. So we don't have a clear viability on when Retail and BFSI will see a recovery,” said TCS management said in a conference.

On the operating front, earnings before interest and tax (EBIT) stood at Rs 9,361 crore during the September quarter, down 4.2% year-on-year, while margins contracted 250 basis points to 24%.

TCS also declared a total dividend of Rs 45 per share for the September quarter, including a special dividend of Rs 40 for the first time since 2014.