TCS posts growth across key mkts

Net profit up 18%, margins rise 218 bps

A falling rupee, all-round growth across key industries and a healthy growth in its majority markets like the US and Europe allowed Tata Consultancy Services to meet street expectations for its third quarter results ended December 30, 2011.

India’s largest information technology (IT) services provider reported a net profit (according to India GAAP) of Rs 2,803 crore for the quarter up 18.2 per cent year-on-year. The revenue for the quarter grew 36.6 per cent at Rs 13,204 crore, led by a strong 18.1 per cent growth in Europe and 13.3 per cent growth in the US, the two key markets. India market also grew 14.8 per cent. The growth was fuelled by a 3.2 per cent uptick in volumes. The company also improved its operating margin by 218 basis points to 29.2 per cent from 27.1 per cent in the previous quarter, mostly because of the depreciating rupee .

“Our third quarter performance has been strong,” said N Chandrasekaran, CEO & MD, TCS. “Led by a well-rounded balance growth operating level, we have seen a good uptick in the enterprise solutions space.”

IT IS GOOD NEWS
Revenue
Company	Q3 (cr)	YoY (%)	QoQ (%)
TCS	13,204	36.6	13.5
Infosys	9,298	30.8	14.8
HCL Tech	5,245	34.9	12.8
PAT
TCS	2,803	18.2	21.8
Infosys	2,372	33.3	24.4
HCL Tech	572.7	43.3	15.3

On a sequential quarter basis (when compared with the trailing quarter), the company’s net profit went up by 21.8 per cent and revenues grew by 13.5 per cent.

During the quarter, TCS won 10 large deals — two each from the retail and the banking and financial services segment. The other were from verticals like life science, telecom and others. Of these 10 deals, three were from Continental Europe. For the quarter, it added 40 clients. For the roadmap ahead, Chandrasekaran maintained there were no cancellations, but there might be lag in ramp ups when it comes to discretionary projects. For Q3, the company had a positive pricing movement of 1.98 per cent.

Partha Iyengar, regional research director at Gartner, said the HCL and TCS results reinforce the message that the overall health of the global sourcing industry is strong. “Year 2012 will see a widening of the gap between companies with a ‘can do’ and ‘cannot do’ style of management in the offshore space, and will likely see a new order emerge,” he said. An analyst believed that the numbers were very much in line. “We were hoping for a higher volume growth, but that has not happened,” he said

TCS reported forex loss of Rs 300 crore for the quarter compared to a loss of Rs 90 crore in the last quarter. TCS chief financial officer S Mahalingam said the firm had increased its operating margins significantly by taking the benefits of growth, exchange movements and by keeping a strong focus on cost management.

Anantha Narayan, research analyst of Credit Suisse, said both volume and revenue growth were similar to what Infosys reported, but the management commentary in the press interview was a lot more confident that what Infosys had sounded a few days ago.

“There were no hiccups in operational metrics -- billing rates moved up slightly, Europe and financial services segments were stable, top clients were stable, order flow was strong and recruitment was strong (headcount is up 21% yoy),” he said in his report.

TCS added 18,907 employees during the quarter, with net addition being 11,981. Attrition during the quarter went down to 12.8 per cent from the last quarters over 13 per cent. Utilisation during the quarter was 82.02 per cent (excluding trainees). “So far we have added 51,000 employees over the three quarters,” said Ajoy Mukherjee, executive VP and head (global human resources). “For the fourth quarter, we will hire around 15,000 more. For FY 12, our hiring numbers will be slightly higher than the stated 60,000.”