Driven by volume growth in the American continent, Asia-Pacific region and emerging markets, India’s largest IT services provider, Tata Consultancy Services (TCS), today beat analysts’ expectations to post a 24.3 per cent jump in its consolidated (Indian GAAP) net profit at Rs 1,906 crore for the quarter ended June 30.
Its revenue, too, at Rs 8,217 crore recorded a 14 per cent increase as compared with the figures posted during the same period a year ago. Sequentially (compared with the trailing quarter), TCS’ net was down 4.7 per cent, while its revenue was up 6.2 per cent. In dollar terms, the company posted a 29.3 per cent year-on-year (YoY) growth in revenue but a 4.9 per cent drop in quarter-on-quarter (QoQ) net profit.
All industry sectors contributed to the company’s volume growth at 8.1 per cent. In terms of service lines, there was balanced growth across IT and other new service lines like BPO, infrastructure services and assurance. In terms of markets, North America and Asia led the momentum for growth (contributing to 59.3 per cent of the total revenue), and all other markets grew in constant currency terms. India reported a growth of 6 per cent on a QoQ basis. It now accounts for 8.8 per cent of the total revenue.
TCS also increased its hiring target by 10,000 for 2010-11 from the earlier 30,000.
Chief Executive Officer and Managing Director N Chandrasekaran said: “This has been a quarter of complete outperformance. Our balanced growth was driven by disciplined execution and strong demand across markets and industry sectors.”
He added: “This has been one of the best performing quarters since September 2008. And on a constant currency basis, one of the best since September 2007. While we remain alert about changing macro dynamics in many markets, our customer-centric business model is very relevant and helps us participate in the ongoing recovery."
Chandrasekaran believes “there is an opportunity for price increase too”. TCS signed 10 large deals during this quarter and is pursuing 15 large deals across geographies.
“I think TCS has done better on all parameters. It's performance is better than Infosys' both in terms of volume and margins. PAT (profit after tax) is in line with expectation. There was high taxation issue. TCS margins are down 30 basis points (bps) whereas Infosys reported a dip of 200bps. Even the attrition level at TCS are much better than Infosys,” said an analyst of a leading brokerage house.
“The numbers are above expectations. Revenue growth is very healthy, margins growth too has been exemplary. For TCS the growth has been all rounded and not depending on a few sectors. Rather the core service lines have also done very well. I think an EPS (earnings per share) upgrade of 5-6 per cent is a possibility,” said Viju George of JP Morgan.
S Mahalingam, chief financial officer and executive director, attributed the growth to "...the structural strength of our business model”. “Our investments in building an extensive front office presence in new markets is helping support and sustain higher growth,” he said.
The company's net profit was down due to salary hikes, cross currency movement and higher tax outgoing. TCS had a forex loss of Rs 47 crore this quarter compared to a forex gain of Rs 42 crore last quarter. TCS has hedges cover of $500 million for the next six months. “We have about Euro 30 million hedges, whereas the total hedging cover is $500 million. We have a rate in line and our strategy is to protect this rate over the next six months,” said Mahalingam.
On a constant currency basis, TCS managed to grow its Europe business by almost 2 per cent. Chandrasekaran added that while the company was observing the macro environment in Europe, talks with clients have been positive. When asked to comment on reports of a possible cancellation of the Pound 500 million contract from the UK's Personal Accounts Delivery Authority (PADA), Chandrasekaran said: "The UK government is going through a due diligence process of large deals. As for the PADA contract, it is very much on track and even in case of cancellation we have enough protection in place."
| ON THE RISE | ||||||||
| Revenue (in cr) | Net profit (in cr) | |||||||
| Q1’10 | Q1’11 | YoY (%) | QoQ (%) | Q1’10 | Q1’11 | YoY (%) | QoQ (%) | |
| TCS | 7,207 | 8,217 | 14 | 6.2 | 1,534 | 1,906 | 24.3 | -4.7 |
| Infosys | 5,472 | 6,198 | 13.3 | 4.3 | 1,488 | 1,525 | (2.4)* | -7 |
| ( ): indicates dip in growth | ||||||||
Utilisation in the first quarter of fiscal 2011 was 82.6 per cent (excluding trainees) and 74.8 per cent (including trainees). The attrition rate in the first quarter for IT Services was 12.3 per cent (in the last 12 months) and for BPO 20 per cent, while overall attrition was at 13.1 per cent. TCS had a gross hiring of 10,849 employees but a net hiring of 3,271. Of the total hiring, 80 per cent constituted lateral hires (experienced). At the end of first quarter the total employee strength of the company was 163,700. Foreign nationals formed 7.2 per cent of the total employee base and 31 per cent were women.
“We have decided to increase the hiring target for FY2011 to 40,000, an increase of 10,000 from the previous estimate given the strong deal momentum and continuing ramp ups. Looking at the high attrition rate we will continue to focus on retention,” said Ajoy Mukherjee, vice-president and head, Global Human Resources.
