After 12 quarters, TCS sees double-digit growth in dollar revenue in Q4

Company beats estimates with healthy net profit and revenue growth; digital revenues continue to grow much ahead company average growth rate

Tata Consultancy Services (TCS), the country’s largest information technology (IT) services provider, on Thursday announced a strong set of numbers in the March quarter (Q4) as well as for 2017-18, backed by all-round growth in key verticals and geographies, and digital services and solutions. 
 

The Mumbai-headquartered company posted double-digit revenue growth in dollar terms in Q4 for the first time in the last 12 quarters.  The management was confident of sustaining this growth rate in the coming quarters. 

The company’s net profit and revenue in the quarter beat Street estimates, while margin growth was slightly below the industry’s expectations, owing to cross-currency volatility. In the March quarter, the company’s net profit stood at Rs 69 billion, a 4.7 per cent year-on-year growth rate and 5.71 per cent sequential growth. TCS’s revenues at Rs 320.75 billion grew 8.2 per cent y-o-y and 3.8 per cent quarter-on-quarter, backed by 2 per cent growth in volumes (billed man-hours in the quarter). 

TCS also announced a 1:1 bonus of shares and a dividend of Rs 29 a share, taking the total payout to shareholders at Rs 50 for the year. It has paid about Rs 260 billion to shareholders in dividends and bonuses in 2017-18. Reuters’s estimates, based on analysts’ projections, had pegged TCS Q4 net profit and revenues at Rs 68.12 billion and Rs 316 billion, respectively. The company maintained its margins guidance target band of 26-28 per cent for 2018-19, led by recovery in revenues coupled with accelerated growth in digital business. Compared to TCS, rival Infosys’s net profit and revenues grew 2.4 per cent and 5.6 per cent, respectively, year-on-year. Sequentially, the net profit of Infosys declined 28.1 per cent and revenues grew 1.6 per cent. 

From left: TCS Executive Vice-President Ajoyendra Mukherjee, CEO & MD Rajesh Gopinathan and COO N Ganapathy Subramaniam in Mumbai on Thursday. Photo: Kamlesh Pednekar

“We are quite happy with the positive response to our strategy in the market,” Rajesh Gopinathan, TCS chief executive officer and managing director, said during a post-earnings call, adding, “Strong demand in digital across all industry verticals and large transformational deal wins have made this quarter one of our best fourth quarters in recent years.” 

In Q4, the company’s digital business accounted for 23.8 per cent of its overall revenues and grew at 42.8 per cent, compared to the same period last year. 
 

“TCS has delivered a good show for Q4, with growth in revenues and profitability more than estimates, though margin performance was a tad below expectations, owing to higher variable payouts. Management commentary on digital piece was quite encouraging, which grew by 43 per cent year-on-year and 10 per cent quarter-on-quarter, contributing to 23.8 per cent of its revenues,” said Sanjeev Hota, assistant vice-president (research), Sharekhan. 

For 2017-18, TCS’s net profit saw a decline of 1.76 per cent at Rs 258 billion, while revenues grew 4.4 per cent at Rs 1,231 billion. In dollar terms, the Q4 net profit stood at $1.07 billion, a 5.7 per cent year-on-year increase, while revenues recorded growth of 11.7 per cent at $4.97 billion. For 2017-18, the company’s revenues, in dollar terms, grew 8.6 per cent to $19.09 billion, compared to Infosys’s growth rate of 7.2 per cent. The full-year margin, however, contracted by 90 basis points (bps) to 24.8 per cent; a 70 bps contraction due to currency fluctuations and the remaining 20 bps because of wage hikes and higher variable pay offered during the year. “We are executing on our ‘Business 4.0’ strategy and that is paying off very well,” TCS Chief Operating Officer and Executive Director N Ganapathy Subramaniam said, adding, “Six of our industry verticals grew above the company average in 2017-18, four of them growing double digits. Strong deal wins and a good pipeline positions us very well in the new financial year.”

Most business verticals of TCS showed strong growth except for the banking and financial business in North America, which, the company said, was still showing some ‘softness’ but could improve in the first quarter of 2018-19. Growth during the quarter was led by Europe, especially the UK, backed by large deal wins. During the year, the company added 66 new customers, including three clients who generated $100 million and more in annual revenue and 15 clients who generated over $50 million. 

The company added about 4,118 people on a net basis in Q4, the highest employee addition in a quarter for 2017-18, even as the attrition rate continued to slide and ended at 11 per cent. 

“The company reached double-digit revenue growth in dollar terms after Q4 of 2014-15. The management sounded optimistic to drive double-digit revenue growth in 2018-19,” said a post-earnings note from Axis Capital. “Moreover, the company highlighted bottoming out challenges in BFSI/North America, with growth returning in Q1FY19,” it added.