Strong growth across core markets and increasing adoption of cloud computing helped India’s largest software exporter TCS beat market expectations and report a 9.9 per cent rise in profit to ₹6,317 crore from ₹5,747 crore in the same quarter last year.
However, margins fell to 25.1 per cent, below the company’s stated target band of 26-28 percent. TCS’ revenue grew 14.2 per cent to ₹29,305 crore in the quarter from ₹25,668 crore last year. In dollar terms, revenue rose 8.1 per cent to $4.36 billion from $4.03 billion a year earlier.
“Most of this growth is driven by either cloud adoption for business agility purposes or like in telecom, front-office transformation of systems using digital technologies,” said TCS CEO and Managing Director N Chandrasekaran. Digital revenue continued to increase as a percentage of overall revenues for the company. In the first quarter, digital revenues accounted for 15.9 per cent of TCS’ overall revenue, up from 15.5 per cent in the last sequential quarter.
The company added six new clients in the $20 million-plus band, while four new clients were added in the $50 million-plus band. The first quarter is traditionally a strong quarter for the company.
Margins remained under pressure for the IT services major, driven by salary hikes and currency volatility. The company, however, maintained that it still aspires to be in the 26-28 percent margin band.
TCS has the highest exposure to Europe among its Indian peers and is thus the most susceptible to the impact of Brexit. In the first quarter, Europe and the UK contributed to about 8.4 per cent of the company’s revenues. Rahul Shah, Vice-President, Equity Advisory Group, Motilal Oswal Securities, said: “Going forward we need to understand the management commentary; the three challenges for TCS will be Brexit, currency and the visa regime.”
Chandrasekaran said the company is watching the post-Brexit developments. “We need to see what the developments are going to be and what the reactions are going to be from clients. Our strategy would be to stay very close and then take action as appropriate.”
On the people front, the company’s attrition rate declined for the third straight quarter to 13.6 per cent as the company added 17,792 (gross) employees during the quarter, taking its total headcount to 3.62 lakh as of June 30.
TCS shares closed 1.2 per cent higher on the BSE before the earnings were announced