Soaring 10.9% TCS net beats street; worried over visas curbs

TCS, the largest software exporter, today reported a street-beating 10.9 per cent rise in December quarter net profit at Rs 6,778 crore helped by growth in digital and traditional financial sectors, but flagged issues surrounding the H1-B visas in the US as a key headwind going forward.
The Tata Group's crown jewel had reported a net profit of Rs 6,110 crore under the Ind-AS accounting system for the corresponding period last fiscal.
Revenue rose to Rs 29,735 crore, up 8.7 per cent over the year-ago period and 1.5 per cent from the preceding September quarter. The net profit growth is up 2.9 per cent on a sequential basis.

In the wake of a new Bill being introduced to regulate visas in the US, which contributes over 65 per cent of its revenues, amid a fear of a rise in protectionist tendencies in the Donald Trump regime, managing director and chief executive N Chandrasekaran acknowledged visas as a potential headwind.
Exuding confidence of maintaining pre-tax margins-- which came in at 26 per cent for the reporting quarter --in the 26-28 per cent target band, he explained that the problem is both on account of the fees for every visa and also the number of visas which companies can get.

Expecting such a move in the future, TCS has applied for only 4,000 visas in 2016 which is far less than 14,000 in the previous year and was granted only a third of those applied for, he said, stressing that it has been able to protect margins in target range despite that.

On the Trump presidency, he said the US presents a "mixed bag" with positives like a rise in GDP and also the president-elect's focus on pushing local manufacturing, but the visa-related issues are the headwinds.
The results came on a day when its chief N Chandrasekaran was made chairman of the group holding company Tata Sons. He will be succeeded by Rajesh Gopinathan as TCS CEO.

Angel Broking termed the numbers as "slightly better than expected, on the sales and EBIT front, another brokerage Emkay Global said the net is above its estimate but the overall numbers are in line with operational performances supported by higher sales. The net income jump is aided by forex gains.
The market too lapped up the TCS stocks announced after the market hours. The TCS counter jumped 0.9 per cent on the BSE at Rs 2,343.30 after touching Rs 2,359.75, while the benchmark Sensex closed up 0.4 per cent.
During the reporting quarter, TCS' largest segment of banking financial services and insurance grew faster than the average at 2.1 per cent sequentially on constant currency, while digital revenue is now 16.8 per cent after surging 6.6 per cent which the company hopes to maintain.

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Stating that for second quarter in a row, the
performance of its acquired British company Diligenta is better and the deal pipeline is also strong, he said 2017-18 will be better for insurance than the ongoing fiscal.
Energy and utilities rose 5.8 per cent on constant currency terms during the reporting quarter, while there was softness in communication and healthcare which was called as a one-off by the management.
After dipping in the last quarter, its domestic revenue grew 10.3 per cent in the December quarter and Latin America was also up 12.5 per cent, but Chandrasekaran identified these as volatile markets.

He said currency volatility, which has seen a strengthening in the dollar following the US Fed's rate hikes, has impacted the company and shaved up to 1.70 per cent of its dollar revenue.
The company added two clients in the USD 50-million- plus bracket and five in the over USD 10 million band during the quarter.
The net addition of employees was 6,978 and the total strength has moved up to 3.78 lakh, while the attrition came down to 12.2 per cent on an overall basis and 11.3 per cent for the core IT services business.
Chandrasekaran, who is widely speculated to succeed Ratan Tata as the chairman of the USD 103-billion group's holding company Tata Sons, refused to reply when asked about the same.