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Tata Consultancy Services uncorked a surprise with its estimate-beating results, albeit a tad, but maintained its leadership position during times of muted growth.
The country’s largest software exporter – registering a sustainable growth across verticals, good repeat business from climate and substantial hedging – has also been consistent in its performance quarter after quarter.
Over the last eight quarters, TCS has seen a robust increase in revenues. The IT major’s revenues rose to Rs 15,620.75 crore in the second quarter ended September from Rs 9,663.35 crore in the quarter ended December 2010.
The rise, nearly 1.6 times, was recorded during the past eight quarters.
“TCS has clearly emerged as the poster boy of the Indian IT industry. For the last eight quarters or so, TCS has been doing well, while among the mid-cap, Hexaware Technologies and KPIT Cummins are also doing well, while some of the IT majors are not…,” said Jagannathan Thunuguntla, Equity Head at brokerage firm SMC Capitals.
The Tata group company’s net profits have also been soaring. TCS’ net profits rose to Rs 3,434 crore in the September quarter from Rs 2,369.83 crore in the quarter ended December 2010. This is, however, baring marginal dips (compared with the year ago quarters) in June 2011 and September 2011 quarters.
“It’s many things that we do; it’s not just one thing. I think we are a very agile organisation, and have units that are very compact. These units have leaderships that are very agile, and these are always focused on customers, and we are making bets and executing them,” said TCS Chief Executive Officer and Managing Director N. Chandrasekaran.
“In general, we are executing them (projects) well. I think it’s a combination of all of these, strategy, execution, right bets and agile units,” Chandrasekaran added.
SURGE IN SEPTEMBER
On Friday, the Mumbai-based firm reported a 49.2 per cent surge in second quarter net profit at Rs 3,434.37 crore (Rs 2,301 crore in the year ago quarter). The surge, which analysts admitted were better than their expectations, was aided by good performance from across all its markets.
Further, TCS’ 5.1 per cent rise in revenue on a sequential basis (quarter on quarter) for the quarter ended September, is much better than 2.5 per cent growth at Infosys and 3 per cent at HCL. TCS’ share prices have also consistently increased from an average of Rs 1,157.15 in January 2011 to Rs 1,290.30 in October 2012.
IT companies, according to analysts, were expected to post a muted second quarter (September quarter) as the US economy continued to be in the grip of a slowdown.
“The IT sector has its up and downs, but TCS has been a consistent performer and has not yet disappointed the investors. Yes, the second quarter results were a pleasant surprise. There are a couple of companies such as HCL and Cognizant that are also consistent,” Ankita Somani, sector analyst with Angel Broking, said.
“Apart from registering growth from all the verticals, expansion of footprint across the Middle East, Asia-Pacific and Latin America also helped,” Somani added.
HIGHER OPERATING MARGINS
More importantly, the Tata group company posted higher operating margins than Infosys in the second quarter, making it the most profitable among the top-tier firms. However, according to analysts, what would matter is whether the company can sustain this in the coming quarters.
TCS expects to perform better than the industry, is all Chandrasekaran would say, declining to provide estimates. IT industry body Nasscom had estimated the sector to grow by about 11-14 per cent till March 2013.
“There is an uptick in discretionary spend, particularly in areas of analytics and mobility, while decision-making is normal,” Chandrasekaran said, adding, TCS, as a policy, does not provide, an outlook.
However, TCS’ operating margin has eased off by the last three quarters despite about 9 per cent depreciation in currency, according to a report by brokerage firm Prabhudas Lilladher.
“We continue to see margin headwinds for the company as freshers come on board, project starts to ramp-up and there is an increase in subcontracting costs,” the brokerage firm said.
“We plan to hire 25,000 freshers from campuses and have given offer letters for about 12,600 trainees. The hiring process will go on till January, with the employees expected to join in FY13,” TCS Executive Vice-President, Global Head (Human Resources) Ajoyendra Mukherjee said.
The IT major, which had a gross addition of 18,654 employees in the June-September quarter, increasing its headcount to 2,54,076, including subsidiaries.
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