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Tata Consultancy Services net beats Street, sees strong growth ahead

Thursday, 17 April 2014 - 9:30am IST | Place: Mumbai | Agency: dna

Tata Consultancy Services (TCS) surprised the Street by reporting a 48.2% year-on-year rise in its fourth-quarter net profit at Rs 5,297 crore.

An analyst poll by Thomson Reuters had pegged net profit at Rs 5,198 crore.

The net profit growth was also higher than the 25% posted by the closest peer, Infosys.

However, on a quarterly basis, TCS's net profit grew only by 0.5% sequentially.

On the dollar-revenue front, revenues of the India's biggest software services provider grew by 1.9% quarter on quarter (qoq) at $3,503 million as compared with $3,438 million in the last quarter, but way below the analyst estimates of 2.5%.

However, it was slightly higher than Infy, whose dollar-revenue growth was 1.7% in Q4. Year-on-year (yoy), dollar revenues were up 15.2%.

In rupee terms, revenues were up 31.2% yoy at Rs 21,551 crore as compared with Rs 16,430 crore and 1.2% qoq to Rs 21,294 crore.

Volume growth for the quarter stood at 2.6% and 17.4% yoy, as compared with 0.4% for Infy.

Manik Taneja, analyst with Emkay Global, said, "All in all TCS's operating performance for March 2014 quarter is a tad below estimates. Growth from the US has disappointed TCS akin to what we saw at Infosys. However, TCS continues to do well in Europe."

With the exception of the US market, which grew marginally at 0.9% in the quarter on account of seasonality, and India market which was flat at 0.3% qoq, continental Europe grew extremely well 6.3% qoq. UK grew 3.6% qoq.

Vertical-wise, only financial services grew 2.4%, while the rest, including manufacturing, telecom and retail declined 0.4%, 1.3% and 0.3%, respectively in the quarter.

TCS management said $1.5 billion revenues came from BPO business, which they expect to grow, going forward.

TCS said its $100 million clients rose to 24 from 17 in fiscal 2013, while it continues to chase smaller deals aggressively as well.

Management also maintained stable pricing, although its peer Infosys has marginally upped pricing marginally.

TCS said its operating-profit margins came in at a record 29.1% yoy at Rs 23,808 crore. However, on a qoq basis, Ebitda was down by 60 basis points due to forex headwinds and rupee appreciation with Ebitda at Rs 6,281 crore.

N Chandrasekaran, CEO, TCS, said, "While we project softer India business for the next two quarters, we are confident of this fiscal doing better than the last, beating Nasscom estimates of 13-15%. We see growth coming from the US, Europe, APAC and the UK, and from key verticals that include BFSI, retail, and life sciences."

Chandrasekaran said the three main areas of client spend would be simplification, discretionary spend (led by digital, which would be $3-5 billion opportunity), governance, security and risk management.

On the back of good forward-looking growth, Ajoy Mukherjee, global HRD head, TCS, announced wage hikes of 10% for Indian employees on average and 14%-plus for high performers. He also announced 100% variable pay for its India employees.

For developing markets, he said wage hikes would be in the range of 4-6%, and 2-4% for onsite.

Mukherjee said TCS was on track with the hiring target of 55,000, with 25,000 campus recruits for this fiscal. In the last fiscal, TCS made 24,268 net and 61,200 net additions, taking the total employee strength to 300,464. Utilisation rate (excluding trainees) stood at 83.8% and 77.9% (including trainees). However, attrition rate at 11.3%, as compared with 10.3% the last quarter was a little high, mainly on account of

BPO attrition, and is expected to remain high for the next two quarters as well due to seasonality.

Dipen Shah, analyst with Kotak Securities, said, "TCS results were in line with our estimates. TCS has maintained that fiscal 2015 growth rate will be higher than fiscal 2014 rate and we find this encouraging. The company has not seen any slowdown in contract awards and continues to win business in discretionary spend areas."

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