TCS takes forward Infy's momentum

Company beats the Street's expectations in almost every aspect -- net profit growth, margins, volume growth and growth across geographies

If Infosys set the tone at the beginning of the earnings season in FY14, Tata Consultancy Services, the country’s largest information technology (IT) services company, took it ahead on Thursday with a brilliant set of numbers, an all-round growth.

The Mumbai-based company beat the Street’s expectations in almost every aspect — net profit growth, margins, volume growth and growth across geographies.

In the quarter ended June 30, the company posted 15.7 per cent growth in net profit at Rs 3,831 crore when compared with the corresponding quarter last year. Revenue rose 21 per cent to Rs 17,987 crore. On a sequential quarter (compared with the trailing quarter) basis, net profit grew 5.5 per cent and revenue grew 9.5 per cent, better than what Infosys reported for the same period.

The growth was driven by a 6.1 per cent growth in volume (growth in billed man-hours in a quarter), one of the highest posted by it in the recent past. Infosys had reported 4.1 per cent volume growth.

Also, despite a negative impact due to a pay rise, TCS improved its operating margin 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 stood at 82.7 per cent, one of the highest in the recent past.

“The healthy set of results by TCS shrug off any concerns regarding health of the Indian IT industry, raised due to weak performance by global players like Accenture and Oracle,” said Ankita Somani, research analyst for IT and telecom at brokerage firm Angel Research.

As mentioned, the TCS growth was all-round, whether measures by geographical region or business vertical. Almost all regions showed strong growth, except the domestic India business where revenue contracted five per cent sequentially. The company said this was primarily because domestic Indian deals were largely system integration contracts where they don’t see much of annuity-based revenue.

Growth in America, from where TCS derives a little over half its revenue, was six per cent, ahead of Infosys’ 4.9 per cent from the  region. TCS also reported good sequential growth from Europe, where Infosys reported a three per cent decline. The TCS management also said the deal pipeline from Europe was healthy and the company continued to see growth momentum from the region, the second largest IT spender in the world.

“We have delivered another solid quarter, driven by the highest volume growth in the past seven quarters. It has been an all-round performance, with strong revenue growth across markets, led by the US,” said Managing Director  N Chandrasekaran. “Our investments in Europe continue to gain strong traction with customers and helped us deliver industry-leading growth this quarter.”

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

Despite better demand, TCS said the pricing environment continued to be flattish for the company, though “quite stable”.     

“The current environment demands an agile operating model that can capture diverse growth opportunities. We continue to execute to plan and invest for growth, while maintaining stability in our margin profile,” added Rajesh Gopinathan, chief financial officer.