 "N Chandrasekaran")
After six consecutive quarter miss on revenue growth, India’s largest IT services provider Tata Consultancy Services' (TCS) fourth quarter results for the fiscal year 2015-16 were in-line with market expectations, and with management sounding confident about growth in FY17. On volume and revenue basis TCS beat its closest competition, Infosys.
TCS fourth quarter net profit came in at Rs 6,341 crore up 64.4% year-on-year (y-o-y) and 3.8% sequentially.
Revenue for the quarter at Rs 28,449 crore was up 17.5% y-o-y and 4% quarter-on-quarter. The revenue was in line with Bloomberg estimate and were higher by a mere 0.4% and net profit was up 1%.
Read more from our special coverage on "TCS"
In terms of US dollar growth, TCS reported revenue growth of 1.5% sequentially and 2.1% in constant currency basis. Infosys on the other hand reported US dollar growth of 1.6% sequentially and 1.9% on constant currency. On the volume front TCS managed to beat Infosys with a growth of 3.2%, while the latter reported a growth of 2.4%.
“We are ending the year on a stronger terms. Our core portfolio performed strongly in a seasonally weak fourth quarter driven by strong volumes led by growth in BFSI, retail and manufacturing sectors. This gives us good momentum going into the new financial year. Our investments in building high impact digital platforms is paying off, resulting in over $2.3 billion in digital revenues,” said N Chandrasekaran, MD and CEO, TCS.
However, TCS was not as lucky as Infosys in terms of profitability during the quarter with the operating margin contracting by 50 basis points at 26.1%, owing to currency volatility, drop in realization and SG&A.
“In FY16, we have balanced our focus on delivering an industry leading financial performance with our ongoing investment program designed to capture evolving Digital demand. We have invested over $250M to support organic growth in our Digital businesses and in new markets, while maintaining our profitability within our desired range and generated strong operating cash flows as well,” said Rajesh Gopinathan, Chief Financial Officer.
One big positive for the company was the continuing growth in its digital services and its increasing share in the revenue. At the end of the quarter, digital revenue was 15.5% with a revenue of $2.3 billion. This was up 52% y-o-y on a constant currency basis.
However, the most important takeaway from the TCS management comment was the fact that the headwinds that had been pulling the company’s performance down for the last six quarters seems to be now lowered. “If you look close our constant currency exit rate or even the US dollar currency exit rate is lower, but we have lesser headwinds as we enter this year compared to what we had in FY16,” said Chandrasekaran.
“Volumes grew 3.2% QoQ vs. our estimate of 2%. This, coupled with the margin pressure, suggests that the company is responding to price aggression from peers. US grew 2.4% QoQ, Europe declined 1.2% QoQ (versus +0.5%/+2.4% QoQ for Infosys).The management reiterated confidence on demand outlook for FY17 to be stable with strong digital revenue growth. Problem segments like Diligenta, Japan are likely to be less of a drag to revenue in FY17, as indicated in its analyst day in March 2016. We do not rule out a slight negative reaction given the margin miss in Q4 FY16,” said a note from UBS.
For the full year, TCS’s net profit grew 23.2% at Rs 24,215 crore and revenue crossed the trillion rupee mark at Rs 108,646 crore, up 11.9%.
What worked well was the growth in its strong sectors like BFS, retail and manufatcuring. BFSI grew 3.2%, retail and distribution was up 2.1% and manufacturing from 3.9%.
This quarter also saw Latin America clocking in a growth of 1.8% and North America grew 2.4%. While UK was down 0.4%, Continental Europe was up 3.6%.
India also acted as a growth propeller with revenue crossing $1 billion mark. Though the company said that the region was cyclical in growth, they are focusing on government contracts.
Management also reiterated that its large deal pipeline continues to look good. For the quarter they signed seven large deals across six verticals. Clients in the $100 million revenue band went up by three, in $50 million rebvenue band clients went up by eight and 17 clients were added in the $10 million and above segment.
On the human resources front, attrition rate for IT services was 14.7% while overall it stood at 15.5% on an LTM basis. FY16 saw an all-time high gross addition of 90,182 employees in FY16, with a net addition of 34,187 employees. In Q4, there was a total gross addition of 22,576 employees and net addition of 9,152 taking its total headcount to 353,843.
