To add 8,000 professionals in Q3.
Beating analysts’ expectations, India’s largest IT services provider, Tata Consultancy Services (TCS), posted a 29.2 per cent increase in consolidated net profit (Indian GAAP) at Rs 1,642 crore for the second quarter ended September 30 against Rs 1,271 crore in the same quarter a year ago.
The company's revenue at Rs 7,436 crore was up 6.94 per cent during the quarter compared to Rs 6,953 crore in the same quarter a year earlier. The company added 30 new clients in the reporting quarter.
In dollar terms, though, (US GAAP), the company's revenues were down 2.3 per cent but up 3.9 per cent sequentially. Net profit was up 8 per cent year-on-year and rose 17.1 per cent over the trailing quarter.
| Revenue | Net Profit | |
| 2Q09 | 6953 | 1271 |
| 2Q10 | 7436 | 1642 |
| qoq (%) | 3.2 | 7.1 |
| YoY(%) | 6.9 | 29.2 |
Although the results were announced after trading hours, the company's shares closed 2.84 per cent higher at Rs 599 against the previous day's close of Rs 582.45 on the Bombay Stock Exchange, in anticipation of a robust performance. The company's earnings per share stood at Rs 8.38 in the reporting quarter. It declared a quarterly dividend of Rs 2 per share.
“We are seeing an improvement in market conditions. With our client budgets still being tightly managed, we continue to deliver higher value to customers, deepening our relationships and focusing on superior operational management,” TCS CEO and Managing Director N Chandrasekaran, told reporters here today.
The company attributed strong volume growth of 5 per cent to business wins in Europe and the UK and the continued growth in Latin America and Asia Pacific, besides stability in the banking, financial services and insurance vertical, plus above-average growth in verticals like pharmaceutical, energy and utilities.
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The banking, financial services and insurance (BFSI) sector grew 1.1 per cent and accounts for 43.9 per cent to the overall revenue of the company. However, the telecom business was down 0.6 per cent, while manufacturing was lower by 0.5 per cent.
The contribution from the US region increased 1.5 per cent, while the business growth in the UK region was up 0.4 per cent. India business, however, dropped 1.8 per cent.
Of the 10 large deals won this quarter, four came from the UK. However, the company management said high-tech and manufacturing sectors continue to be under pressure.
"The numbers are better than expected. They have delivered on both the operations and volumes front. This is much better than what Infosys has achieved," said an analyst of a leading broking firm.
However, TCS had a hedging loss of Rs 113 crore in the quarter under review compared to a gain of Rs 84 crore in the last quarter. While the company did not give the exact hedged position for the next two quarters, it said at any time it hedges all of its receivables. That could be in the range of $700 million to 750 million. TCS said it is not taking any new hedging cover.
The 4.9 per cent revenue growth saw a positive impact of 93 basis points (bps) due to currency fluctuations, while selling, general and administrative (SG&A) margins improved by 1.21 per cent. Pricing cuts, however, had a negative impact of 1.39 per cent. The operating margins (EBITA) improvement of 119 bps was aided by a higher offshore (51.1 per cent of TCS' business is done out of India currently) leverage of 74 bps, improved utilisation of 230 bps and continued focus on cost management. The company said it was chasing 25 large deals.
TCS' international business grew 5.3 per cent over the trailing quarter in rupee terms and the company's strong market presence in the US helped the company capitalise on the emerging US recovery. In the UK, wins in the public sector, energy and retail helped the business.
In terms of service lines, strong demand continues for Application Development and Maintenance (ADM) services, while the BPO and Assurance services continue to gather steam. In terms of IP-led solutions, TCS’ flagship BaNCS suite of products added 11 new customers in the global financial services industry during this quarter and seven product implementations went live.
"Given the strong performance during the quarter under review", TCS has decided to pay 150 per cent of the quarterly component of the variable pay this quarter, applicable to all eligible employees on its India payroll. "To ensure that we have resources to participate in the recovery, we plan to add 8,000 new professionals in the October-December quarter," said Ajoy Mukherjee, Vice President, Head, Global Human Resources.
The quarter saw a gross addition of 5,530 employees (net addition of 320). The utilisation rate improved to 79.5 per cent (excluding trainees) and 73.6 per cent (including trainees).
In terms of lateral hiring (experienced professionals), Mukherjee said the company will hire as required. During the last quarter, lateral hiring accounted for 40 per cent of the overall hiring figures. The management said it would visit the campuses in the fourth quarter, that is when students are in their fourth semester.
The attrition rate in Q2 was at 11.4 per cent with attrition in IT services at 10.8 per cent and BPO at 18 per cent.