TCS rides out fortifying Re, wage hikes in Q1

Volume and pricing growth helped the country's largest IT services provider, Tata Consultancy Services (TCS), to partly offset the effects of a wage hike and an appreciating rupee in the first quarter ending June 30, 2007.

The firm posted a consolidated net profit (Indian generally accepted accounting principles) of Rs 1,203 crore "" a 36.3 per cent increase over Rs 882.66 crore in the corresponding period last financial year.

Its consolidated revenue of Rs 5,203 crore saw a 25.2 per cent increase over Rs 4,155 crore in the corresponding quarter last year.

The infotech major saw a marginal rise of 0.8 per cent over the previous quarter's revenue of Rs 5,162 crore and a 0.7 per cent rise over the previous quarter's net profit of Rs 1,195 crore.

In dollar terms, though, its revenue and net profit grew by 8 per cent in the first quarter, driven by volume increases with an upward pricing bias, and the banking and financial services (revenues of this segment grew by 13 per cent), telecom and life sciences verticals "performing strongly".

"This quarter has validated the strength of our business model and our ability to respond to the external financial environment and drive growth under challenging circumstances. Despite factoring in wage hikes and an appreciating rupee, we have maintained profitability by great execution, demand creation and strong financial management," said TCS CEO and MD S Ramadorai.

The appreciating rupee, however, did impact the company's margins by 258 basis points. The operating margin was down 281 basis points to clock 25.49 per cent against 28.3 per cent in the previous quarter. The wage hike, too, impacted the first quarter margins by 208 basis points.

TCS partly countered the effects with productivity improvement, amounting to 213 basis points. Hedging of the rupee against the dollar, Euro and other currencies also helped. Hedging gains were Rs 107 crore this quarter. TCS had about $2.5 billion outstanding in hedges on June 30.

Improved pricing also helped the company. TCS effected a pricing growth of 0.6 per cent this quarter.

It is pursuing 20 deals of $50 million each. For contracts coming up for renewal, the management will increase its pricing between 3 and 5 per cent. For new clients, it will be 5 per cent upwards.

S Mahalingam, chief financial officer, said: "Compared with a year ago, the margin position coming into this financial year remains stronger and we will continue to manage this aspect of our business throughout the year."

The company is focusing on moving its clients to higher-revenue bands. "TCS now has 6 customers with annual billings of over $100 million," said N Chandrasekaran, head, global sales and operations.

Meanwhile, TCS remains the largest private sector employer with around 95,000 employees on its rolls on June 30. It continues to have the lowest attrition rate in the industry at just 11.5 per cent.

"To ensure a steady flow of recruits, we have hired a larger number of experienced professionals in Q1 "" traditionally a slow period for inducting freshers," said S Padmanabhan, global head, human resources. TCS continues to have the lowest attrition rate in the industry at just 11.5 per cent.

And global branding campaigns add to the strength of the company. "Our brand-building campaign based around the concept of certainty in IT services continues to increase awareness of our brand worldwide and position us as a leading IT service provider globally, helping us gain mindshare from our customers and potential employees," said Phiroz Vandrevala, Head, Global Corporate Affairs.

Its employee utilisation rates range between 78.2 per cent and 79.4 per cent. There was a gross addition of 8,706 employees of which 2,898 were trainees and 4,795 were experienced professionals in India and 1,013 employees in overseas subsidiaries and branches. The net addition was 5,512 employees.