Strong demand from across sectors and geographies, especially from the US and Europe, coupled with forex gains helped Tata Consultancy Services beat street expectation and report a consolidated June quarter net profit jump on 15.5 percent at Rs 3,831 crore. "It has been a great quarter in terms of volume. We have delivered a volume growth of 6.1 percent, the highest in the past seven quarters. If you look at constant currency growth, it’s 4.83 percent and international revenue constant currency growth is 5.8 percent. “So, except for the domestic market, every other market has grown substantially," managing director and chief executive N Chandrasekaran told reporters here this evening.
The company said revenue gains on the rupee fall rose by 160 bps at Rs 760 crore, while its impact on margins has been Rs 160 crore which is an increase of 1.64 percent. During the quarter the company added two $100 million clients in the quarter, he added. While TCS beat the street on all counts, its immediate rival Infosys, which has been disappointing for years, had last week also surprised market with a rise in net profit and maintaining its guidance for the fiscal.
Announcing the results last week Infosys Infosys chief executive SD Shibulal said the its net rose 4 percent to Rs 2,374 crore and maintained a "cautiously optimistic" approach. It also kept its US dollar revenue guidance at 6-10 percent growth for the fiscal, and raised the rupee guidance upwards to 13-17 percent. The quarter also saw its operating margin rose 50 bps to 26.9 per cent during the quarter, Chandrasekaran said. He further said the company saw excellent growth from verticals like banking, telecom, retail, manufacturing and life sciences. However, the domestic market, he said, was impacted by slower decision cycles and business mix being skewed towards system integration projects. Despite bagging Rs 1,100 crore deal from India Post among others, TCS revenues from the domestic market declined by about 5 per cent sequentially.
The company's total revenue, under the Indian IFRS accounting standards, rose 21 per cent to Rs 17,987 crore from Rs 14,869 crore a year ago. "We have been able to deliver a margin improvement of 50 bps at 26.9 percent, which is an excellent position to be in because it is a quarter in which you face a huge headwind in terms of wage hikes and we have been able to work on that and show improvement in margins," he said. The results were announced after the stock markets closed but analysts gave a thumbs up to the numbers. But despite that, the TCS counter shed over 1 per cent on the BSE at Rs 1650.15, while the benchmark Sensex jumped 0.90 percent to close at a six-week high. "Healthy set of TCS results shrugs off any concerns regarding health of the domestic IT industry which were raised due to weak performance by global players like Accenture and Oracle. We remain positive on TCS which has been a consistent performer," Angel Broking research analyst for IT and telecom Ankita Somani said in a note. Dipen Shah, head of private client group research at Kotak Securities said the results are above estimates.
"The highlight was the 6.1 percent volume growth… Margins improved despite salary hikes, which is creditable. Net profits were higher than what we had estimates," he added. Chandrasekaran said the company has a strong deal pipeline, which gives him the confidence of growing faster than industry body Nasscom's outlook of 12-14 per cent growth for the over $100 billion IT sector. "In terms of deal wins, it was very well rounded. It has come from across industries whether it is banking, government, utilities, pharma or manufacturing, deal pipeline is good," he said.
Talking about regulatory changes being seen in markets like Australia and Canada and the impending US immigration bill, he said clients are not expressing any concerns. "One thing you have to expect in this current environment is there is an unemployment issue. Job growth is a major issue being faced by many nations. So you are seeing regulatory changes or discussions, dialogues… So, we just have to be respective of those situations and engage in the whole process and then see what changes we need to make to our business model as and when it is required," he added. He further said there is no impact on client spending and they understand the environment and are working with that.
"Each market its currently happening, so there is no finality in terms of these are the new rules. So we all have to wait to see how the US immigration bill will move on and take appropriate actions," Chandrasekaran said. On the margins, chief financial officer Rajesh Gopinathan said, "tere are broadly three major theme on the margins. We have had a 160 basis points (bps) benefit coming from currency depreciation, we have about 89 bps impact because of the absence of the one off cost we had last quarter and we had about 170 bps impact due to the wage hike that we gave." During the quarter, the company's gross employee addition was 10,611, while the net addition was 1,390 people.
The overall employee utilisation rates stood at 82.7 per cent. The attrition rate for IT arm stood at 9.55 per cent, while that for the BPO arm was higher at 15.77 per cent. "We have been able to push our utilisation rates further. The on-boarding of current year's engineering graduate trainees will start from this quarter onwards," executive vice-president and global HR head Ajoy Mukherjee said. For the reported quaretr, TCS declared a dividend per share of Rs 4, Gopinathan said. As the quarter end, the company has applied for 1,340 patents, including 60 applied during the quarter. Till date, the company has been granted 90 patents.
During the quarter, TCS closed the acquisition of Alti, a French system integrator of SAP solutions. "The acquisition was closed on June 28. The P&L will be added next quarter, but there was a Rs 500-crore goodwill impact included this quarter in our balace sheet," Chandrasekaran said.
