TCS third quarter net up 33.9%

India’s largest IT services provider, Tata Consultancy Services, beat market expectations to post a 33.9 per cent jump in its net profit at Rs 1,824 crore for the quarter ended December 31, 2009 as compared to the same period a year ago. Its revenue, too, jumped 5.1 per cent on strong volumes of 6.6 per cent to touch Rs 7,649 crore year-on-year.

On a sequential (quarter-on-quarter) basis, TCS’ net profit rose 11.1 per cent, while revenue jumped 2.9 per cent. In dollar terms, TCS performed even better. Its revenue was up 10.3 per cent year-on-year and 6.3 per cent sequentially, while net profit rose 38.9 per cent year-on-year and 14.2 per cent quarter-on-quarter.

In comparison, Infosys’ net profit at Rs 1,582 crore declined 3.6 per cent in third quarter of 2010, while the company’s net grew 2.7 per cent sequentially. Its revenue, too, at Rs 5,741 crore declined 0.8 per cent year-on-year, but grew 2.8 per cent sequentially.

TCS beat analysts’ expectations by posting a 33 per rise in net profit as against consensus estimates of 20 per cent.

“TCS’ numbers are much better than Infosys. It has clearly not been dependent only on the BFSI segment, like Infosys. It has managed to have an inclusive growth. More importantly, its margin has improved more than Infosys. In the net profit growth, TCS has clearly overtaken Infosys,” said Viju George of Edelweiss.

Dipen Shah, senior vice president, PCG (Private Client Group) research, Kotak Securities, said: “TCS results were above estimates. The volume growth was a positive surprise. Even the margin improvement at the operating level was more than expected. A broad-based growth is also a positive with the large demand constituents of BFSI and USA growing well in the quarter.”

TCS Chief Executive and Managing Director N Chandrasekaran attributed the performance to his investments being “ahead of time in emerging markets”.

S Mahalingam, Chief Financial Officer, TCS, said: “We have continued to leverage all the margin improvement levers very effectively to deliver growth with higher profitability. This has been achieved in spite of significant currency headwinds.”

TCS’ top 10 client share increased by 100 basis points (bps). In rupee terms, its net margin increased by 176 bps sequentially. The company also implemented tight control on costs in third quarter of 2010. Its cost of revenue as a percentage of its total revenue declined by 185 basis points to 53.54 per cent. The savings came primarily from a decline in the share of its overseas business expenditure by 276 basis points due to the appreciation of rupee. The other operating expenses, mainly SG&A (selling, general and administration) expenses declined by 59 basis points to 19.16 per cent. TCS reported other income of Rs 66 crore as against a loss of Rs 172 crore in the third quarter of the previous year.

Operating margins of the company were up 7.9 per cent. Its operating profit (EBIDTA) margins were up 126 bps, utilisation improved by 360 bps, and the company’s offshore leverage rose by 20 bps. Moreover, TCS recorded positive business growth across all verticals. As was the case with Infosys, TCS, too, saw demand recovery starting in the BFSI segment (which accounted for 45 per cent of its revenue in the quarter under review), with telecom and technology posting healthy growth. Strong client additions supported above-average revenue growth in the energy and utilities space, according to the TCS management.