TCS expects single-digit growth in FY20

India’s biggest information technology (IT) company Tata Consultancy Services (TCS) grew at the slowest pace among peers in the third (December) quarter of the current financial year, reporting flat profits.

TCS chief executive Rajesh Gopinathan termed the muted performance as a “short-term phenomenon” but also admitted that the company will not be able to end the year with the robust performance it had reported last year. In FY19, TCS posted double-digit growth after a long hiatus.

“Overall growth last year was 11.5%. We are not going to be anywhere near that,” Gopinathan told reporters after announcing the results.

Over the last four years, some of TCS’s biggest verticals like finance and retail weren’t growing well enough due to changes in the respective industries. Banking was getting more digital, and retail, too, was facing headwinds from e-commerce players, which led to weaker investments by brick-and-mortar retail giants. This quarter, a flux in the industry led to structural changes in deals involving large banks and retail customers in the U.S., slowing down growth for the IT major.

The company’s revenue grew by 0.3% during the quarter to $5.59 billion over the previous quarter, much lower than the 1% growth that analysts were expecting. In rupee terms, TCS profits remained flat at Rs 8,118 crore over the third quarter last year, while revenue grew 6.7% to Rs 39,854 crore.

Being the industry’s biggest player, TCS’s result can cast a shadow on the industry’s performance in the next few quarters. In the past couple of weeks, other IT majors like Infosys and HCL Technologies raised their guidance for the year. Infosys has forecast that it will report overall growth of 10-10.5% for the current financial year, while HCL Technologies has a more aggressive projection of 16.5-17% factoring in acquisitions.

TCS won deals worth $6 billion during the quarter, taking the total wins to $18 billion during the first nine months of the current financial year. North America, the largest market for TCS, grew slowly due to fewer businesses from large banking clients there. However, Gopinath reiterated that while there was a dip in spending, technology budgets of large clients were not reducing and the company also ascertained that it was gaining market share in the banking vertical in its biggest markets.

N Ganapathy Subramaniam, chief operating officer and executive director, said: "In a seasonally weak quarter characterised by furloughs across multiple industry verticals, we focussed on execution while continuing to invest for future growth. Having onboarded over 30,000 trainees in the first half of the year, we worked on driving up utilisation in Q3.”

TCS shares had ended 0.9% lower at ₹2,218 on the BSE on Friday ahead of the earnings announcement. The company declared an interim dividend of ₹5 per share.