TCS Q1 PAT up 28.5% YoY; India business down 14.1% due to second wave

The company continued to see robust growth operationally, reporting total contract value of $8.1 billion, deal signing driven by growth across geographies and verticals

Tata Consultancy Services (TCS) missed the Street expectation as its India business pulled down revenue growth during the first quarter of FY22. India business for the country’s largest IT services player was down 14 per cent as the second wave of Covid19 impacted business sentiments.

For the first quarter, net profit of the company at Rs 9,008 crore grew by 28.5 per cent year-on-year basis, but was down 2.5 per cent sequentially. Revenue for the quarter grew 18.5 per cent year-on-year at Rs 45,411 crore, and was up 3.9 per cent sequentially. According to Bloomberg poll, analysts were estimating revenue of Rs 45,767.5 crore and net profit of Rs 9,391.9 crore for the quarter gone by.

In dollar terms, the company’s topline revenue growth was 2.5 per cent at $6.15 billion, a tad below analysts’ expectation of 3.5 to 4 per cent growth.

On the operational front, the company continued to see a robust growth. For the quarter, TCS reported a total contract value of $8.1 billion. The deal signing has been driven by growth across geographies and verticals.

Rajesh Gopinathan, CEO and MD, said, “In a personally challenging quarter to many, TCS has managed to report a finely balanced quarter. While we have seen strong growth in core markets, we have seen challenges in emerging market like India….. our customer addition across bands has grown in this quarter. Rather customer addition has surpassed pre-Covid levels.”

The India business was impacted as cloud-based iON service bore the burnt of the  second wave of Covid. Some of the projects in the public sector including the Passport Seva Kendras too were impacted.

“TCS results were below our estimates. The company is watchful of Covid situation and its impact on growth. We believe that the impact on India revenues will be reverted in coming quarters. Hence, we expect improving revenue trajectory and expect the company to achieve double digit revenue growth in FY22E. This coupled with healthy deal pipeline, and robust margins keep us positive on the stock from a longer-term perspective. We would be revisiting our estimates and target price shortly,” said the first cut note from ICICI Direct Research.

TCS reported growth across regions and verticals. Growth continued to be led by life sciences and healthcare with a sequential increase of 7.3 per cent and 25.4 per cent year on year. Retail and consumer packaged goods (CPG) also bounced back, growing 4.4 per cent sequentially and 21.7 per cent year on year. BFSI grew 3.1 per cent sequentially and 19.3 per cent year on year, manufacturing 4.8 per cent sequentially and 18.3 per cent year on year, technology and services 5 per cent sequentially and 12.3 per cent year on year and communications and media 1.7 per cent sequentially and 6.9 per cent year on year.

Going by geographies, North America grew sequentially by 4.1 per cent, UK was up 3.6 per cent, Continental Europe 1.5 per cent, Latin America 4 per cent and Middle East & Africa 4.2 per cent. The pandemic’s second wave impacted growth in India, falling 14.1 per cent sequentially. Asia Pacific grew 2.4 per cent sequentially.

TCS also crossed the 500,000 milestone in total workforce. At a headcount of 509,058, TCS reported attrition of 8.6 per cent. Although the attrition rate is the lowest among peers, it has gone up from last quarter’s 7.2 per cent. For the first quarter, the company added a net of 20,409 associates.

Elaborating on the Covid19 immunization drive at TCS, Milind Lakkad, chief HR officer, said that in less than two months, over half a million associates and family members and over 70 per cent of the associates had been vaccinated. ‘’We are on track to vaccinate all TCSers and families by September,” said Lakkad.

DD Mishra, Senior Research Director, Gartner, said the company’s reorganizing itself and changing its operating model to align with the requirements in the market. ‘’It has managed to control attrition and provided stability which is a good indicator for a stable organization.”