TCS raises sector benchmark

Driven by strong volume growth, company reports all-round growth

Tata Consultancy Services (TCS) has not only beat Street expectation again but is also setting benchmarks, difficult for others to follow. Its growth is across regions and consumer segments, despite a depreciating rupee, wage rises, headwinds from Europe and concerns of deal pipelines getting impacted due to the immigration bill in America.

“What is working for us is that we are paying attention and trying to be as specific as we can towards client demands. Because revenues are shrinking, there is a new cost base that clients are looking at. This does not mean a price cut; clients are looking at new approaches, heavy automation and delivery platforms like the cloud,” said N Chandrasekaran, managing director and chief executive. For the quarter ended June, it posted 15.5 per cent year-on-year growth in net profit at Rs 3,831 crore. Revenue went up 21 per cent to Rs 17,987 crore compared to the year-ago period, driven by volume growth of 6.1 per cent, one of the highest posted by TCS in the recent past.  

Also, despite a negative impact from a pay rise, operating margin improved by 50 basis points to 26.9 per cent, much closer to its stated comfort zone of 27 per cent. The utilisation rate during the quarter was 82.7 per cent.

Growth was led by Europe, of 15 per cent (the UK 5.4 per cent and continental Europe 9.7 per cent). The US grew 5.9 per cent. This was ahead of Infosys’ growth of 4.9 per cent in the US and slow growth in Europe. The only drag in geographical growth was India, down 10 per cent.  Management said telecom, volatile in the recent past, delivered one of its best quarters with nine per cent growth, followed by 3.5 per cent growth in BFSI (banking, financial services and insurance). TCS reiterated its confidence in being able to better the sector’s growth rate of 12-14 per cent as estimated by Nasscom.     

“The results were above estimates. The highlight was the 6.1 per cent volume growth, a seven-quarter high. Margins improved despite salary hikes, which is creditable. Net profits were higher than what we had estimated. TCS has been reporting above-average volume growth consistently and has been able to sustain margins. This reflects its strong account management and execution capabilities,” said Dipen Shah, head of private client group research, Kotak Securities.

During the quarter, the company won 10 large clients, mostly from the US. The company also saw the addition of two more $100 million clients during the quarter, which it said were existing clients which grew further.  

Personbel attrition was one of the lowest in the past 27 quarters, at 10.52 per cent. It was 9.6 per cent in IT and 15.8 per cent in business process outsourcing. It added 10,611 (gross) people during the quarter.
GROWTH DRIVERS

• Volume growth 6.1%
• Utilisation rate 82.7%
• Attrition rate 10.5%, lowest in 27 quarters
• Telecom grew 9%, BFSI* 3.5%
• Europe grew 15%, US 6%
• Aims to do better than Nasscom’s growth estimate of 12-14% for FY14

*Banking, financial services and insurance