Tata Consultancy Services, India’s leader in software exports, blasted past Street expectations – just the way No. 2 Infosys did last week -- keeping hopes afloat that it will beat industry body Nasscom's predictions of 11-14% growth for this fiscal.
Tata Consultancy Services, India’s leader in software exports, blasted past Street expectations – just the way No. 2 Infosys did last week -- keeping hopes afloat that it will beat industry body Nasscom's predictions of 11-14% growth for this fiscal.
“TCS is clearly doing better than its competitors, largely because they’ve gone aggressively into developing markets,” Atul Thakkar, analyst with Anand Rathi Financial Services, told Bloomberg. “If the developed world continues to produce like we saw this quarter, that would be a game changer,” he said.
TCS' consolidated net profit rose 27% to Rs 3,550 crore for the quarter ended December 31, beating estimates of around Rs 3,400 crore.
Revenues rose 21.7% to Rs 16,070 crore, and the company beat its 'aspirational' Ebidta margin of 27%, at 27.3%, a growth of 56 basis points on-quarter.
Rumit Dugar, analyst with Religare Capital Markets, said TCS’s dollar growth at 3.2% was in line with expectations.
“It was led by Latin America(+11% QoQ), while Americas and the UK grew 2.5% and 5.2%, respectively,” he said. “Overall a steady quarter and better-than-expected margins. Further growth in consulting, which is discretionary, is encouraging,” Dugar said.
The stellar performance comes after TCS predicted a soft third and fourth quarters due to longer-than-usual furloughs in December in the hi-tech and manufacturing verticals.
“While there was minimal impact on account of Hurricane Sandy, the furloughs were felt in other sectors as well like BFSI and telecom. This is what led to a huge drop in our volumes this quarter,” said S Mahalingam, chief financial officer and executive director, TCS.
But Rikesh Parikh of Motilal Oswal Securities said TCS has fallen short of Infosys on volume growth. “But its margins on constant currency are better.”
N Chandrasekaran, MD & CEO, TCS, said discretionary spends were better than last quarter, as was the pick-up in non-linear services.
“While we are seeing all-round growth, specific areas of client budgets that we are confident on are front office, digital and cloud. While we bagged 31 clients in the quarter – with 16 of them in the $100 million category, compared with 14 in the last quarter, thanks to good deal closures in October-December,” he said.
“The price realisation increase of 1.3% in October-December also helped. Thus, we remain positive going forward,” Chandrasekaran said.
This is in contrast to the gloomy 'optimistically cautious' stance by Infosys, which does not expect growth to pick up much in FY14.
However, Infy's European clients have been growing better than TCS, which termed continental Europe and emerging markets as 'volatile'.
During the quarter, TCS added 17,145 employees, with a net addition of 9,561, taking its total headcount to 2,63,637. That compares with just 977 net additions by Infosys.
Overall attrition fell to 11.2%, including BPO, while utilisation, excluding trainees was at 81.7%.
“There is a 10% scope for expansion of our utilisation, but that will depend on market factors,” said Ajoy Mukherjee, executive vice-president and head, Global Human Resources, TCS.
He said TCS had almost reached its hiring target of 50,000 for the year in this quarter itself. The company, however, has given out 24,000 campus offers, and aims to take this to 25,000 by June next year.
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