Tata Consultancy Services has beaten market expectations to clock a 26.7 per cent rise in consolidated net profit for the first quarter ended June as it managed to increase business from all key geographies and industries.
Net profit for the quarter stood at Rs 2,415 crore against Rs 1,906 crore reported in the same quarter a year ago. However, on a sequential basis, the net profit was down 7.9 per cent.
Revenues for the quarter under review were up 31.4 per cent to Rs 10,797 crore (Rs 8,217 crore)
Growth was led by industries such as hi-tech, retail and financial services and service lines such as infrastructure, assurance and global consulting. In terms of geographies, Asia Pacific grew by over eight per cent while its North America business increased by over six per cent.
During the quarter, the company added 24 new clients and won 10 large deals. Of the 10 large deals, four came from banking and financial services – a space that accounts for a lion's share of the company' revenues.
Volume growth during the quarter was 7.4 per cent, which, according to analysts, is an indication that the company is able to garner more market share vis-à-vis competition. Infosys clocked 4 per cent volume growth.
TCS saw a 213 basis points decline in its operating margin to 26.1 per cent largely due to annual hikes given to staffers, said Mr S. Mahalingam, Chief Financial Officer and Executive Director.
“We have managed to migrate several of our clients into higher revenue bands... the number of clients in the $50 million plus category has gone to 33 from 27,” Mr N. Chandrasekaran, Chief Executive Officer and Managing Director, told a press conference here on Thursday.
“We believe TCS' higher penetration in the BFSI sector has played a crucial role in its continued positive results over the last few quarters. Besides, the company also registered a double-digit growth in the telecom vertical this time around, a sector which has been reported as an area of concern by other IT service providers (with slower decision making cycles),” said Mr Amneet Singh, Vice-President, Global Sourcing, Everest Group.
The Mumbai-based company, which writes software applications and manages back office processes for multinationals such as GE, Ferrari and State Bank of India, had given salary hikes of 12-14 per cent to its India-based staff and 2-4 per cent in other major markets such as the US, the UK and Europe.
“The major headwind in terms of salary hikes is behind us… from here on the margins should improve,” said Mr Chandrasekaran.
TCS has said in the past that it would be comfortable operating at margins of around 27 per cent.
Though the company management is optimistic about the future demand outlook, there are still concerns surrounding the business environment in key geographies. While unemployment is a key theme in the US and UK, the unrest in the Middle East is also a reason for the company to stay watchful.