India's largest IT services provider, Tata Consultancy Services, recorded a net profit of Rs 1,271 crore -- up only 1.5 per cent as compared to the Rs 1,291 crore figure of the corresponding period a year ago. Sequentially (as compared to the trailing quarter), its net profit was down 1.5 per cent.
The company's revenue at Rs 6,953 crore was up 25.3 per cent year-on-year while it rose 8.5 per cent sequentially (Rs 6,411 crore in the trailing quarter). In US dollar terms, however, its net profit dipped 3.4 per cent rise YoY and 6.9 per cent QoQ. The company does not provide guidance. The forex loss for the quarter, which ate into its net profit figure, stood at Rs 261 crore. This is because the company had taken additional hedges due to the rupee movement.
Had TCS not done this hedging, the management explained, there would have been additional losses of Rs 150 crore. TCS' total hedged position is $1.8 billion. Moreover, the company is provision for possible losses from six clients, four of which are in the BFSI segment. This impacted its operating profit margin by 55 basis points (bps).
"Of all the service providers, TCS has the most diversified client portfolio and the maximum exposure to the BFSI segment. Due to this, TCS has been impacted in the short-term as that has been mainly due to 12-13 per cent depreciation of the dollar against the Euro and the Pound", explained Avinash Vashishtha, CEO and MD, Tholons.
To its credit, though, it increased hiring this quarter and added 51 clients (16 more than the trailing quarter). The company also saw growth in its BFSI segment despite the turmoil. It is currently negotiating 20 deals across verticals. Pricing gave TCS a 30 bps benefit while offshoring gave it another 99 bps. Its operating profit margin grew by 164 bps (Indian GAAP) in the quarter under review. The company also had a forex gain of 146 bps.
“Our business model is resilient and we have demonstrated this in Q2 through volume growth, improvement in our offshore leverage, pricing, productivity as well as over 50 new client wins. We have a robust pipeline even in the current environment and our diversified market presence and full services will drive growth in the future,” said N Chandrasekaran, Chief Operating Officer.
The company's international business, too, grew 9.5 per cent sequentially. While North America posted positive growth, ramp ups from recent large outsourcing wins continue to drive growth in UK and Continental Europe. Balanced growth across new growth markets like Ibero-america, APAC, Middle East and Africa helped compensate for softer growth in developed markets. TCS CEO and MD, S Ramadorai, said: "New opportunities are emerging and there are signs that our services will play a significant part in the global economic recovery. Our acquisition of Citigroup Global Services will provide another driver for growth.”
S Mahalingam, Chief Financial Officer, asserted that "in a quarter where the Indian rupee and global currency has been very volatile, TCS has managed to deliver greater profitablity by achieving significant improvement in operating profits and margins".
Highlights for Quarter Ended September 30, 2008
* Q2 Revenues at Rs 6,953 cr; up 25.3% Y-o-Y, Up 8.5% Q-o-Q
* Q2 Net Profit at Rs 1,271 cr up 1.5% Y-o-Y and 1.5% Q-o-Q
* 51 new clients added in Q2 (was 35 in the trailing quarter)
* 9,682 employees joined the company in Q2
* Attrition at 13.2% LTM (including BPO)
* Quarterly dividend of Rs 3 per share
* EPS at Rs 12.99 in Q2