TCS Q1 net profit rises 10.8% to Rs 8,131 crore; revenue up 11.4%

Market leader Tata Consultancy Services (TCS) has performed steadily in the first quarter of 2019-20 by sustaining double-digit growth.

However, the company’s revenue in dollar terms missed the street estimates while a stronger rupee ate into its operating margins.

TCS on Tuesday announced it posted a net profit of Rs 8,131 crore, a 10.8 per cent rise over the corresponding period of the previous financial year.

Sequentially, the rise was marginal. During the April-June period, the Mumbai-based firm reported an 11.4 per cent rise in revenue at Rs 38,172 crore on a year-on-year (YoY) basis while it was 0.4 per cent higher over the preceding quarter. 

In dollar terms, revenue was $5.48 billion, up 8.6 per cent YoY, while the rise in constant currency terms was 10.6 per cent.

Bloomberg had estimated its revenue in Q1 of this financial year would be $5.62 billion.

“We have had a steady start to the new financial year. We see customers continuing to spend on their growth and transformation initiatives, and that is showing in our strong order book and deal pipeline this quarter,” said Rajesh Gopinathan, chief executive officer and managing director, TCS. The IT services major, which eyes continuing double-digit growth in this financial year, bagged outsourcing contracts worth around $5.7 billion.

This is its fourth consecutive quarter of getting deals of more than $5 billion. “Deal wins continue to be big but we are working on a high base compared to last year. So, the numbers look stretched but the momentum is there. We are looking to sustain the growth more than acceleration now,” Gopinathan said. 

TCS, during the quarter, added four clients in the $100-million bracket (clients that contribute $100 million in revenue on an annualised basis), taking the count of such clients to 44.

However, a stronger rupee proved to be a drag on the operating margin, which fell 90 basis points sequentially.

Wage hikes also played a role in margin contraction.“Currency depreciation is intrinsic to our model and that could be the only spoiler,” said V Ramakrishnan, chief financial officer, TCS.

During the quarter, currency appreciation and wage hikes accounted for a 90 basis-point fall in margins, he said. However, forex, treasury, and tax lines strongly defended the net margin. Among verticals, revenue growth was mostly broad-based with life sciences and healthcare leading the pack with 18.1 per cent YoY growth. The BFSI (banking, financial services, and insurance) vertical, a key one, grew 9.2 per cent, while retail and CPG (consumer packaged goods) was up 7.9 per cent. Growth in the BFSI segment, however, was slow compared to the preceding quarter, in which TCS posted around 11.6 per cent growth. 

“Given the high base, growth in BFSI has been significant. We see some stress in the capital markets segment and among European banks. (Except that), growth remains fairly steady, which is nicely consolidating,” said Gopinathan.

Among other verticals, communications and media grew 8.4 per cent, and technology and services 7.8 per cent.