Tata Consultancy Services, the country's largest IT services provider, recorded a net profit of Rs 1,271 crore, up only 1.5 per cent, in the quarter ended September 30. It recorded a net profit of Rs 1,251 crore in the previous corresponding quarter. Sequentially, 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). However, in dollar terms, net profit dipped 3.4 per cent YoY and 6.9 per cent QoQ. The company does not provide revenue guidance. The forex loss for the quarter, which ate into its net profit, stood at Rs 261 crore. This is because the company had taken additional hedges due to the rupee movement.
Had TCS not done the hedging, the management explained, there would have been additional losses of Rs 150 crore. Its total hedged position stands at $1.8 billion. Moreover, the company made 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 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, it increased hirings in the quarter and added 51 clients (16 more than the trailing quarter). The company also saw growth in the BFSI segment despite the global financial turmoil. It is currently negotiating 20 deals across verticals. Pricing gave TCS a 30 bps benefit while offshoring gave it another 99 bps advantage. 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 also grew 9.5 per cent sequentially. While North America posted positive growth, recent large outsourcing wins continue to drive growth in the UK and Continental Europe. Balanced growth across new growth markets helped compensate for softer growth in developed markets.
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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.”
Chief Financial Officer S Mahalingam said, "In a quarter, when the Indian rupee and global currency have been volatile, TCS has managed to deliver greater profitability by achieving significant improvement in operating profits and margins."