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Tata Consultancy misses quarterly profit estimates

CEO says he does not expect growth to accelerate in next two quarters

MUMBAI (NewsRise) -- Tata Consultancy Services posted a weaker-than-expected second-quarter profit, as slowing investments from clients in banking and retail sectors weighed on India's largest software exporter.

The Tata Group flagship has been growing at a fast past over the past year thanks to surging investments in new internet technologies and a string of large deals. However, growing spending curbs by banks across western markets and a clouded global economic outlook damped the outsourcing company's growth prospects in the last quarter.

TCS Chief Executive Rajesh Gopinathan said he does not expect growth to accelerate in the next two quarters, raising doubts over the company's ability to post a double-digit revenue expansion this fiscal year. In July, the company said it remains focused on maintaining the double-digit growth momentum seen in the last fiscal year.

The company said its consolidated net profit for the quarter ended in September stood at 80.4 billion rupees ($1.1 billion), compared with 79.01 billion rupees a year earlier. Revenue grew more than 5.8% to 389.8 billion rupees. Analysts were expecting the company to report a net profit of 82.6 billion rupees, according to Refinitiv data.

The Mumbai-based company also announced a special dividend of 40 rupees a share.

TCS faced "increased volatility" in the financial services and retail businesses, Gopinathan said in a statement. Gopinathan said he remains "confident as the medium and longer-term demand for our services continues to be very strong."

The pace of growth in banking and financial services that accounted for a third of TCS' total revenue has been steadily declining over the past few quarters. TCS saw the sector post an 8% expansion, compared with 9.2% and 12% in the previous two quarters. Revenue from the retail business fell 4.8% "as deals got pushed out," Gopinathan said.

"Large banks across Europe, the U.K., and Wall Street are...facing softness across the board," he said.

Still, the company saw its order book touch $6.4 billion in the quarter, its highest in the last six quarters. Last month, TCS struck a five-year engineering design services partnership with General Motors, as part of which it agreed to take over some of the assets of GM's technical center in the southern Indian city of Bengaluru, including about 1,300 employees.

Digital revenue, which accounts for a third of TCS's overall revenue, rose more than 28% in the quarter.

TCS saw its operating margins decline 20 basis points sequentially in the quarter, as rising expenses undermined the benefits of a weaker rupee as well as absence of wage hikes and other visa related costs. Growing investments in digital technologies and hiring in local markets have been a major cost overhang for most Indian IT companies.

Analysts are expecting the industry's growth rate to moderate this quarter as an escalating trade war between the U.S. and China and Britain's likely exit from the European Union without a deal have triggered fears of the global economy slipping into the slow growth lane.

Rival Infosys is set to report its second-quarter results on Friday. Infosys is expected to raise its revenue growth outlook for this fiscal year.

Shares of TCS lost 0.8% in Mumbai trading, ahead of its results. The benchmark S&P BSE Sensex, too, lost 0.8%.

--Dhanya Ann Thoppil

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