TCS starts financial year on rousing note

Broad-based growth across divisions and markets, and the ability to manage its cost better, allowed India’s largest information technology services company, Tata Consultancy Services (TCS), to again deliver results which were better than expected.

TCS managed to surprise the Street on all key parameters, such as net profit, margins and volume. With a strong start to the financial year, the management reiterated its stand of doing better than in 2013-14 on growth. TCS reported net income (IFRS) of Rs 5,058 crore for this financial year’s first quarter, ended June, up 26.9 per cent from Rs 5,297 crore in the same quarter last year.

On a sequential basis, net income was down 4.5 per cent; it was 13.5 per cent ahead of Bloomberg’s consensus estimate. On revenue, the company reported growth of 22.9 per cent at Rs 22,111 crore over a year and 2.6 per cent sequentially. In dollar terms, TCS reported revenue growth of 5.5 per cent.

What surprised the Street was volume growth of 5.7 per cent. “The numbers are clearly better than expected. It’s an all-round growth, revenue is upbeat, margins are better. TCS has managed to meet expectations over the quarters and it seems they are now beating the expectation, too,” said Viju George, analyst with JPMorgan.

The company also managed to surprise analysts on its margin. Despite a pay rise of 10 per cent and an appreciating rupee and a one-time impact from depreciation policy, the margin was 26.3 per cent.

“Growth this quarter has been broad-based. Europe, the UK, India and the US have all done well, though the Middle East and Africa had muted growth. Going ahead, we see the US, UK and Europe doing well. We see lots of opportunity in the US,” said Managing Director N Chandrasekaran. The management says the pipeline for the future is robust. For the quarter, the company added seven large deals, spread across six verticals. It added five clients in the $50-million segment.

“TCS has outpaced its peers on revenue and Ebitda (earnings before interest, taxes, depreciation and amortisation) growth in the past three years, which we believe is sustainable. With its superior market coverage across geographies and industry verticals, and the wide array of services provided, it is best placed to capture demand,” said Ankita Somani, research analyst, MSFL Research.

TATA Consultancy Services ( TCS )