India's TCS slips after Q2 profit miss, other IT firms advance (updated)

L&T Technology Services

11/10/2024 08:33

(Rewrites paragraph 1 with rivals, adds details, background,
analyst comments from paragraph 2)
    By VarunVyas Hebbalalu and Ashna Teresa Britto
       Oct 11 (Reuters) - 
    India's Tata Consultancy Services'  TCS.NS  shares slumped
as much as 2.7% on Friday after its second-quarter profit missed
Street estimates, although rivals advanced on expectations that
demand in their key banking segment was recovering.
        The stock, which was choppy in early trade, was last
down 2.4% at 4,125.15 rupees.
  
    On Thursday, the country's No.1 IT firm posted a net profit
of 119.09 billion rupees ($1.42 billion), missing analyst
estimates, as revenue in its North American market, which
accounts for nearly half of overall sales, fell for a fourth
straight quarter.
    TCS' revenue declined in North America due to a client in
the lifesciences and healthcare vertical reducing the scope of a
project, it said, without elaborating.
    The results are not a broad-based gauge for demand as the
weakness was client-specific, said Abhishek Kumar, analyst at
JM Financial.
    The market is optimistic about IT companies in light of
further U.S. rate cuts, he said.
    Indian IT firms get a large chunk of their revenue from the
United States.
     Still, the company's banking, financial services and
insurance (BFSI) segment, its largest vertical, showed signs of
recovery.
    Its BFSI division grew in North America, but saw some
softness in the UK and European markets.
    "TCS' second-quarter results suggest that the road to
recovery in developed markets is likely to be volatile. However,
we keep the faith given TCS' continued hiring and improvement in
outlook for BFSI," Jefferies said.
    Rivals Infosys  INFY.NS , Wipro  WIPR.NS  and HCLTech
 HCLT.NS , due to report results next week, rose 0.1%-1.5% on
Friday. BFSI is a major revenue-generator for Indian IT firms.
    "Revenue and margins challenges in Q2 were specific to TCS
in our view, but the improving demand visibility and BFSI
recovery are positive signs for the sector, PhillipCapital
analysts said.
    TCS' second-quarter operating margin inched down 0.2%
year-on-year to 24.1%.
    At least seven analysts slashed their price targets on TCS'
stock after results, while nine bumped up their price targets,
per LSEG data.
       
($1 = 83.9625 Indian rupees)

 (Reporting by Varun Hebbalalu and Ashna Teresa Britto in
Bengaluru; Editing by Varun H K and Sonia Cheema)
 ((AshnaTeresa.Britto@thomsonreuters.com;))