 "TCS results cheer market")
The company delivered an in-line fourth quarter and FY13 results. It reiterated its stand that the business environment looked better for FY2014 and that it was confident of bettering the Nasscom estimated growth rate of 12-14 per cent for the information technology (IT) sector in 2013-14. For the quarter ended March 31, it reported a net profit of Rs 3,597 crore, about 22 per cent more than in the corresponding quarter of 2011-12 and a rise of 1.3 per cent on a quarter-on-quarter basis.
"Heterogeneity in performance continues to be the theme in Indian IT in 2013. TCS/HCL’s start to the year, as well as commentary, suggests much greater confidence on growth/margins, unlike Infosys. While the impending US Immigration Bill, if passed in the current form, could be disastrous and an overhang on sector-wide valuations, continuation of such financial outperformance will likely help TCS maintain its premium valuations," said Nimish Joshi and Arati Mishra of CLSA in their report.
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<B>Robust</B><BR>
For the quarter, the company saw all-round performance across regions and sectors. Revenue for the quarter grew 23.9 per cent, at Rs 16,430 crore from Rs 13,259 crore in the same quarter last year. On a sequential basis (compared to the quarter ended December 31, 2012), revenue was up 2.2 per cent.
TCS also reported robust volume growth for the quarter vis-a-vis peers Infosys and HCL Technologies. The volume growth was 4.4 per cent during the quarter, as compared to 1.8 per cent and 3.8 per cent for Infosys and HCL, respectively.
"We remain confident that 2013-14 will bring greater opportunities. We continue to see a strong deal pipeline. We are seeing traction in both run-of-the-business kind of work and discretionary spends. We are positive about growth in our largest sector, banking, finance and insurance (BFSI), along with recovery in the telecom sector," said N Chandrasekaran, managing director and chief executive officer. During the quarter, TCS signed 11 large deals and added 57 new clients.
For the full year, net profit grew 30.9 per cent, to Rs 13,941 crore. Revenue was up 28.8 per cent, to Rs 62,989 crore. The company also managed to do better on margins, despite a one-time settlement cost of $30 million and a negative currency impact of 64 basis points (bps). Operating margins for the quarter were at 26.5 per cent.
<B>Ahead</B><BR>
"Given that the company ended FY13 with constant currency revenue growth of 16.2 per cent versus the initial outlook of 14-15 per cent, we remain convinced that our current forecast of 20 per cent year-on-year in FY14 is entirely achievable. TCS’ commentary on large segments like banking and financial services (40 per cent of India’s IT exports) also reassures us the demand environment in 2013 is improving," said Divya Nagarajan of UBS Securities.
In terms of region, growth was driven by India (17.2 per cent), followed by Latin America (9.1 per cent), Continental Europe (2.5 per cent) and Middle East and Africa (2.2 per cent). North America grew 1.4 per cent, Britain declined 1.9 per cent and the Asia-Pacific was down 0.4 per cent.
"What came as a disappointment was the quantum of fall in margin. We had expected margins to decline by 30 bps. But what is a big positive is the management commentary, the annual wage hike, continued hiring guidance and the fact that they think that FY14 will be a better year, along with the growth in the telecom sector," said Ankita Somani, research analyst, IT & Telecom, Angel Broking.
<B>Rounded</B><BR>
Analysts also maintained that among the top three IT firms which had announced their March quarter numbers, TCS was the outperformer. "TCS is a better bet than HCL, simply because it has a broad base performance and continues to address the entire value chain. HCL, on the other hand, is riding high on its growth in infrastructure management services," said an analyst of a leading brokerage firm.
“Our growth has been well-rounded in 2012-13 and we have maintained our profitability, despite stiff headwinds and increased volatility through the year. We continue to ensure cost discipline at an operational level, while supporting diversified business growth,” said Rajesh Gopinathan, chief financial officer of TCS.
For FY14, the company will hire a total of 45,000 people. Of this, it has already provided offer letters to 24,500 campus freshers, who would join from June onwards. The company also announced pay rises of five to 10 per cent (an average of seven per cent) in India, four to six per cent for employees in developing countries and two to four per cent onsite. These apply from April 1.
SCORECARD
- Volume growth of 4.4% q-o-q; 16.8% y-o-y
- Hiring target of 45,000; 24,500 offer letters issued
- USD revenue croses $3 billion
- Confident of doing better than Nasscom's growth target of 12-14% for FY14
- Attrition rate at 10.6%; IT services attrition lowest at 9.4%