The company’s better-than-expected result was aided by robust growth in its digital services
Tata Consultancy Services (TCS), which announced its December quarter result on Thursday, beat market estimates.
Its revenues in constant currency (CC) and net profit grew at 1.3% quarter-on-quarter, aided by robust growth in its digital services, lower tax and employee cost and higher other income.
Net profit for the third quarter came in at Rs 6,545 crore as compared to Rs 6,460 crore in the previous quarter.
The Mumbai-based tech firm’s volume growth was the highest in the last three years at 1.6% last quarter, which is generally considered weak.
Its operating margins for the quarter were 10 basis points (bps) higher than last quarter at 25.2%. It had dipped to 23.4% in the first quarter of the current fiscal. Tata Group’s IT firm, which has guided for an operating margin of between 26% and 28%, may well end the current fiscal with an operating margin below the lower end of the target at 25%.
Rajesh Gopinath, CEO and managing director, TCS, said his company could have easily achieved the lower end of operating margin guidance had the rupee not “moved in an unexpected area”. He asserted the management was committed to its margin guidance.
Sarabjit Kour Nangra, VP research – IT, Angel Broking, said net profit rose sequentially as earnings before interest and tax (Ebit) margin improved in Q3.
Gopinath said continental Europe, which grew 2.6% in CC, was poised to become the second largest market after the US next year. North America grew at 1.5% while the UK grew at 8.2%.
“In terms of the geography, USA was the key driver, with North America and Latin America registering a QoQ (quarter-on-quarter) CC growth of 1.5% and 5%, respectively,” said Nangra.
Overall growth in all industry verticals, excluding retail and banking, financial services and insurance (BFSI), was 9.5% in the third quarter even as the company saw a rebound in retail with a 6.4% growth.
Gopinath said smaller industries like energy, utilities and travel and hospitality grew at a “scorching pace” with a 20-25% YoY growth.
Digital services also grew at 39.6% and increased its contribution to total revenue to 22.1% from less than 20% a quarter ago.
“New deal ramp-ups, increasing traction in digital, robust demand pick up in retail and continuing momentum in most of industry verticals gave strong volume growth in a seasonally weak quarter,” said N Ganapathy Subramaniam, COO and exdirector of TCS.
DIGITAL PUSH
- The company’s better-than-expected result was aided by robust growth in its digital services
- Its revenues in constant currency and net profit grew at 1.3% quarter on quarter
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