Beating analysts’ expectations, India’s largest IT services provider Tata Consultancy Services (TCS) reported a net profit (consolidated Indian Generally Accepted Accounting Principles — GAAP) of Rs 1,534 crore — up 19 per cent year-on-year (Y-o-Y) for the first quarter ended June 30, 2009.
Its revenue for the same period stood at Rs 7,207 crore — up 12 per cent Y-o-Y. The company’s net profit was up 15 per cent sequentially (quarter-on-quarter, or Q-o-Q), while the revenue was up 0.5 per cent Q-o-Q for the quarter under review. TCS, unlike its peers, does not provide guidance. The company incurred a foreign exchange loss of Rs 85 crore.
Apart from the broad-based growth in markets like North America and aided by a semblance of stability in the banking, financial services and insurance (BFSI) verticals, the company said strong operational execution also helped it.
In Europe, demand uptake from recently-acquired clients is helping sustain growth momentum and the pipeline remains strong, while demand from emerging markets is being driven by system integration and outsourcing engagements. But the management also accepted that currency volatility in the UK and stress due to a telecom client (BT) in the region is creating stress.
The company signed 26 new clients, of which eight were large deals. Five of these where from the US, two from Europe and one from the APAC region. The TCS management said that the deal pipeline is healthy and the company was tracking 20 odd deals.
| THE RIGHT CLICK | ||
| Revenue | PAT | |
| Q1 FY09 (Rs cr) | 6,411 | 1,291 |
| Q1 FY10 (Rs cr) | 7207.00 | 1534 |
| YoY % | 12 | 19 |
| Q4 FY09 (Rs cr) | 7172 | 1333 |
| QoQ % | 0.5 | 15 |
Q-o-Q growth on back of BFSI, retail, media
On a quarter-on-quarter basis, the company saw growth from sectors like BFSI, retail and media. Verticals like telecom, manufacturing and hi-tech continued to be under pressure. For the quarter, TCS saw an increase of 113 bps on operating margins, while offshoring focus had a positive impact of 256 bps, which had a positive impact of 95 bps on margins. Pricing saw a decline of 25 bps on revenues and 33 bps on operating margins.
Among service lines, application and outsourcing services continued to maintain revenue share despite a slowdown in new deals. TCS’ remote infrastructure management solutions continue to attract good traction across markets. The company continues to leverage industry-leading portfolio of BPO solutions to deliver growth.
Chief Executive Officer and Managing Director S Ramadorai said: “While we remain vigilant about the environment, TCS is leveraging its global presence and the investments made in developed and emerging markets to deliver our proposition of certainty, which resonates clearly with customers in these challenging times and helps us create long-term value for shareholders.” Chief Operating Officer and Executive Director N Chandrasekaran admitted that the pricing scenario continues to remain the same. “This quarter, we had a negative pricing impact of 25 bps points,” he added. This was much better than a drop of 427 bps in pricing last quarter.
Freshers put on projects
On the hiring front, utilisation in Q1 FY09 was 79.2 per cent (excluding trainees) and 71.3 per cent (including trainees). The percentage of utilisation was higher, including trainees as the company was able to include freshers onto projects.
While there was a gross addition of 2,828, the net addition was down 2,119. The attrition rate in Q1 was 11.5 per cent. At the end of Q1, the total employee strength of the company was 141,642. Foreign nationals formed 8.3 per cent of the total employee base and 30 per cent were women.
Kotak Securities Vice President (PCG Research) Dipen Shah said: “TCS results for Q1FY10 were above expectations. The company has been able to report a decent volume growth of 3.5 per cent in the backdrop of a challenging global economic environment. Higher offshore proportion of revenues and control on costs helped the company report an improvement in margins on a Q-o-Q basis. Higher other income and lower forex loss led to an above — expectation net profit figure.”
TCS is also ramping up its Cincinnati centre. It has made campus offers to 111 students. This was the first time that TCS is hiring such a large number from US campuses directly. Of the 111 offers, 99 students have accepted and 38 have already joined.
