Tata Consultancy Services has reported Q4 revenue of Rs 29,642 cr, a decline of 0.3%, and said his company will wait and see about new US visa regulations that are scheduled to come out today.
NEW VISA RULES
On new visa regulations expected today, Gopinathan said TCS will ‘wait and see’ what kind of rules are put in place. “We have always been in compliance (with the rules),” he said.
Trump will today order the US Department of Homeland Securit to review the way H1B visas are awarded and set up a new system so that visas are given only to highly paid, specially skilled applicants, and not lower-paid foreign workers who replace higher-paid US professionals.
Gopinathan said he is not worried about remaining competitive viz a viz other Indian players. “We are competitive and as long as the regimes are equal for everyone, we don’t see our relative competitiveness going down,” he added.
“US is our largest market, we will continue to stay in the market and meet our customer requirements. For doing that, whatever we need to do, we will do,” HR head Ajoy Mukerjee added. “We are going for a less visa-dependent business model and that will be the focus.”
The number of visas applied for last year was one-third less than in the previous year. The company has applied for a similar number of visas in the ongoing year, he added.
At present, TCS, Infosys and other Indian IT companies are heavily dependent on H1B visas, which they get in tens of thousands every year.
It is likely that the cost of IT services provided by TCS and others players would go up, forcing clients to look at alternate ways of fulfilling their requirements, including using software as well as other, local providers.
HIRING
The uncertainty will have an impact on the company’s hiring for the new year, officials said.
“We will continue to hire in all geographies, but the gross hires will come down,” said Mukerjee said about the company’s plans for the coming year.
The company said it added over 33,000 people added during the year.
He also said a larger variety of talent, such as accountants, will be hired going forward.
Increments will be 2-5% hike on average for onsite employees and increment and promotion letters will start going out today.
Q4 RESULTS
TCS reported fourth-quarter numbers that were below expectations.
Constant currency growth for the fourth quarter was 1% sequentially.
North America revenue declined 1.5% on quarter, compensated by growth in other markets.
CEO Rajesh Gopinathan said he expects the financial services revenue to recover in the coming months.
The Street expected a sequential revenue growth of 1.5% to 2% stripped of the impact of currency fluctuations. This implied a 4.4%-5.4% increase on a year-on-year basis.
Net profit is Rs 6,608 cr, a decline of 2.5% on a quarter on quarter basis.
The average net profit forecast by analysts was 6,640 cr, a decline of 2% on a quarter-on-quarter basis.
EBIT was Rs 7,627 cr versus 7,733 in the preceding quarter.
OUTLOOK
“We see FY18 as incrementally positive, we are quite positive about demand… Will focus on agile, cloud and automation within the digital space in the next year,” Gopinathan said.
“Overall, difficult to quantify, but directionally quite positive,” he said.
BFSI and hi-tech would be stronger in the next year, the CEO added.
“BFSI, we are quite positive about it,” he said. “We are seeing a lot of momentum for small projects, but the deal sizes are small. We met with almost all our key customers in that space and they have very strong investment agenda. BFSI is not a structural problem, we see the investment agenda.”
“Retail is more difficult to call.. there is financial stress building up in the industry. It is likely to remain volatile or soft through the year.
“Diligenta and Japan should see some growth. We have a very strong pipeline in Diligenta. It should do quite well through the year unless something quite significant goes wrong.”
MARGINS
Margin declined 25 basis points sequentially.
At around 25.7%, the full-year operating margin for the company for the last financial year has now fallen below the guidance of 26%-28%. In constant currency, Q4 operating margin was 26.1%, Rajesh Gopinathan said, adding that it fell to 25.7% due to currency impact.
“At this point, we don’t think we need to moderate that.. The focus is to get to 26% and work within that band,” CFO Ramakrishnan said.
In the previous quarter that ended in December, TCS’ revenue rose 1.5% on quarter in rupee terms and 8.7% on year-on-year basis. Net profit in the December quarter was Rs 6,778 crore, up 11%.
Sarabjit Kour Nangra of Angel Broking called the results ‘disappointing’ due to the lower-than-expected numbers.
Urmil Shah of IDBI Capital said revenue was in line with his expectations, but margins were below what he had estimated.
“We had a satisfying year in a challenging economic environment,” CEO Rajesh Gopinathan said.
You can watch the live press conference below.
Commenting on FY17, Rajesh Gopinathan, CEO and MD said: “FY17 was a year of broad-based growth amidst economic and political turbulence in our key markets. We added $1.4 billion dollars in Constant Currency revenues during the year and increased our digital revenues sharply as we helped our customers leverage the Digital economy. Our digital business grew at 29% annually with most industries showing double digit growth as westeadily increased the number of Customers across different revenue bands.”
Mr. Gopinathan added: “Our clients are looking for integrated offerings as they advance their Cloud agenda and we have a solid pipeline of deals across markets and industries. On the back of digital adoption, Agile, Automation and Cloud are the themes that we are going to market to drive efficiencies and predictable outcomes across our clients Infrastructure, Applications and Business Operations.”
Ganapathy Subramaniam, Chief Operating Officer & Executive Director, said: “Technology is driving different industries to rapidly evolve in new, uncharted ways. To stay relevant, enterprises have to go full on digital, stay agile and delight customers with a superior always-on experience. Our contextual knowledge of the customer’s business Combined with our Digital talent and our unparalleled execution on the ground positions us to play a strategic role to help them transform and grow.”
Ramakrishnan, Chief Financial Officer, said: “Despite headwinds from currencies, we have ended FY17 with an industry-leading financial performance while generating strong cash flows. We continue to invest to support organic growth of our digital business, build new market segments and drive profitability in our targeted range.”
The financial year 2016-17 saw broad-based growth across markets with all industry verticals except BFSI, Retail and Hi-Tech growing in double digits, the company said.
All markets grew in FY17 in CC terms. Among major markets, Europe grew in double digits (13.6%) and crossed $2 billion milestone in revenues followed by North America (7.6%) and UK (6.1%). Among growth markets, MEA (14.8%) and Latin America (14.1%) led the way while India grew at 10.1% and APAC at 5.7%.
Among service lines, Enterprise Solutions and Consulting crossed the $3 billion and Business Process Services crossed the $2 billion revenue milestones respectively. Driven by loT and Industrial Internet solutions, Engineering services led the way with 17.4% growth during the year while infrastructure Services grew at 16% followed by Assurance services with 12.5% growth and BPS with 10.4%.
The Jan-Mar quarter represents the first under its new chief Rajesh Gopinathan, who stepped in for N Chandrasekaran last quarter. N Chandrasekaran has been promoted to chairman of Tata Sons.
Indian and global IT services companies are grappling with far-reaching changes in the way they do business due to technological changes.
Moreover, their core market, the United States, is seeing changes to its visa policy that makes it more difficult for these companies send their cheaper, India-based employees to the country to save costs.
US President Donald Trump will unveil a new bill on visa regulations in a few hours. TCS is expected to comment on t
Last week, competitor Infosys Ltd said it was forecasting a growth of 6.5-8.5% for the year that started on Apr 1. In the previous year, it had forecast growth of 11.8%-13.8%.
