TCS beats expectations, Q4 net jumps 50%

Beating analyst expectations, especially on profit and margins, Tata Consultancy Services (TCS), India’s largest information technology services’ provider, posted a 50.1 per cent jump in its net profit (consolidated Indian GAAP) at Rs 2,001 crore for the quarter ended March 31, compared to the same period a year earlier.

The company’s revenue, too, jumped 7.9 per cent to touch Rs 7,738 crore year on year (YoY) on the back of around four per cent volume growth.

On a sequential (quarter on quarter or QoQ) basis, TCS’ net profit jumped 9.7 per cent, while revenue increased by 1.17 per cent. In dollar terms (consolidated US GAAP), TCS performed even better. Its revenue was up 17.6 per cent YoY and 3.07 per cent QoQ, while its net profit rose by 59.7 per cent YoY and 9.7 per cent QoQ. For the full year (FY2009-10), the company’s net profit at Rs 7,001 crore was up 33 per cent, while its revenues at Rs 30,029 crore were up eight per cent YoY.

TCS does not provide a prediction for the coming year. However, N Chandrasekaran, CEO and MD, said: “We have laid a solid platform for growth.” For the full year, TCS registered strong volume growth of 17 per cent, which Chandrasekaran described as “an exceptional year for TCS”.

S Mahalingam, Chief Financial Officer and Executive Director, attributed the success in the fourth quarter to “our focus on superior project execution and efficient utilisation of experienced professionals”. He added that despite strong currency headwinds, sustained cost efficiencies and treasury management helped improve operating margins and net margins sequentially. The company’s operating profit margin (OPM) was up 51 basis points (bps) sequentially at 28 per cent.

In contrast, Infosys’ OPM was 30.3 per cent for the same period and for the full year (FY 2010-11), too, Infosys’ operating margins were higher than that of TCS. However, TCS showed a 49 bps improvement in OPM for the fourth quarter of 2009-10 as compared to Infosys, which registered a 116 bps dip in margins.

Currently, the Americas (North America and Latin America) account for 58.4 per cent of the company’s business. Europe accounts for 25.3 per cent and India contributes 8.9 per cent to revenue. The TCS management, meanwhile, “still sees a problem in Europe”, most of it due to the depreciation of the euro and pound against the dollar. The company, however, has $500 million in hedges currently and believes it can protect its margins if the rupee hovers around Rs 46 to the dollar.

The banking, financial services and insurance (BFSI) sector accounts for 44.4 per cent of the company’s business, with telecom and retail accounting for a little over 12 per cent each. And, manufacturing contributes to 8.3 per cent of the revenue. The TCS management says the “relatively new service lines” like infrastructure, BPO, assurance business and utilities now account for 25 per cent of the company’s revenue.

TCS has a total of 1,60,000 employees on its rolls. “In FY10, we have been through an entire business cycle where controlled hiring in the first two quarters gave way to rapid recruitment in the last two quarters. We have made 20,000 campus offers for FY11,” said Ajoy Mukherjee, Vice President, Head, Global Human Resources.

Attrition rates continued to be stable at 11.8 per cent on a LTM basis. Overseas nationals formed over 10,700 or 6.7 per cent of the total employee base, with employees from 80 different nationalities. The average age of a TCS employee is 28 yrs; 57 per cent of the workforce has more than three years experience and 30 per cent of them are women.

Employees to get average wage hike of 10%

The TCS management on Monday announced a 10 per cent average wage rise for all its employees. While onsite (on foreign shore) staff can expect a 2-4 per cent wage hike, onshore (in India) can expect a 2-10 per cent increase in salaries, depending on their performance. The management also announced a 125 per cent quarterly variable payout for the Jan-March 2010 quarter. The hikes are expected to affect the company’s operating margins by 300 basis points (bps) in the April-June 2010 quarter (Q1’10). Along with its subsidiaries, TCS expects to hire around 38,000 employees in the coming quarters.