Strong demand in digital boosts net profit; revenue too comes in above what was predicted
The country’s largest software services exporter, Tata Consultancy Services (TCS) on Thursday reported a decent set of numbers, beating analysts expectations on most fronts. The company’s net profit at Rs 6,904 crore during the January-March quarter was up 5.7% quarter-on-quarter on the back of strong demand in the digital segment across industry verticals, and large deal wins. Analysts had estimated TCS to report a net profit of about Rs 6,810 crore on revenue of nearly Rs 31,660 crore, Bloomberg data showed. Revenue during the period was at Rs 32,075 crore, up 3.8% from the preceding quarter, again higher than forecasts. The company also registered a revenue growth of 3.9% sequentially in dollar terms to $4.97 billion — this was higher by $185 million, making it TCS’ highest ever dollar incremental growth from the third to fourth quarter.
This was due to strong constant currency growth of 2% through good volume growth, higher realisations and gains from strong currency.The company maintained its operating margins sequentially, with a 20-basis-point increase to 25.4%, which is after a 120% bonus payout to employees. The company reported an operating income or Ebit (earnings before interest and tax) of Rs 8,147 crore. CEO and managing director Rajesh Gopinathan noted that the cash conversions have been impressive during the quarter and cash defence has been strong with 122% conversion from net profit and the total cash generated close to Rs 8,400 crore. “Continental Europe continues to lead the way. We have seen sustained momentum growth there. More significantly UK,” Gopinathan said.
He said that mid-sized industry segments continue to drive incremental growth — energy and utilities growing at close to 33% and travel and hospitality at more than 25%. He added that digital, in which the company has made strong investments, continues to drive growth for the company forming 28% of total revenues.
“We now have more than $5 billion in annualised revenues from an exit rate perspective,” he said. Gopinathan said client additions continue to remain strong across revenue bands with more than three customers added in the $50-million band. “Employee matrix is also encouraging with net additions of 4,000 people in Q4 and highest net addition of every quarter in this year.
Additionally, our attrition rate continues to tick down so our investments and commitment inorganic talent development drives industry leading retention across all competitors,” he said. It came down by 10 basis points during the quarter and now at 11%. Calling FY18 a “tough but encouraging year”, Gopinathan said the company is back on the growth trajectory on a full-year basis. The net profit for the full year ended March 31 was up by 1.8% to Rs 26,289 crore, while revenue increased by 4.4% to over Rs 1.23 lakh crore.
In all, the company added 66 new customers in the $1 million range, 13 in the $50 million range and three in the $100 million range. In terms of outlook, the company is more optimistic on the banking and financial services segment and North America that it was earlier. “Though the revenues have still not started flowing in, early discussions with clients suggest there is not much stress left in the system and will translate into better spend in the coming year.
However, Q1 will be a better quarter to validate that,” Gopinathan said. As for retail, there are only transient issues left but otherwise going strong.
Executive vice-president and global head, human resources, Ajoyendra Mukherjee said, “Wage hike has been between 2% and 6% and variable payout is at 120%. FY19 hiring will be based on business demand, we’ll be hiring as the year progresses. We are happy with the attrition figures of 11%, we are providing opportunities for our resources to learn new skills and grow. The way we have been adding resources, each and every person has been deployed in engagements — its been a very disciplined ship.”
The total employee strength of the company at the end of Q4FY18 was 394,998 on a consolidated basis. The IT services attrition rate (LTM) fell to 11% while the total attrition rate (including BPS) fell to 11.8%. Chief financial officer V Ramakrishnan said: “Disciplined execution delivered an all-time high cash conversion in Q4. We stayed geared for higher growth, and continued to invest in our people and in the business. With revenue growth improving, and our digital business scaling up, we expect our margins to remain in a stable range.”