Operational efficiencies, margin expansion aid TCS numbers in Q3

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Published: January 18, 2020 2:04:51 AM

In terms of growth metrics, rival Infosys continued to do better in the quarter-ended December, registering a 9.5% growth year-on-year.

tcs, it sectorThe company beat street estimates on operating income, which grew 6.5% sequentially at Rs 9,974 crore, led by cost cutting measures and currency gains.

Operational efficiencies and modest gains from the currency drove the performance of Tata Consultancy Services (TCS) in the December quarter, which is a seasonally weak one. India’s largest IT services company reported sequentially flat growth in its net profit at Rs 8,118 crore in Q3.

The company beat street estimates on operating income, which grew 6.5% sequentially at Rs 9,974 crore, led by cost cutting measures and currency gains. Margins were up 100 basis points sequentially to 25% during the quarter. The company’s board has recommended a dividend of Rs 5 per share.

Revenue growth during the quarter was impacted due to furloughs and weakness in the banking, financial services and insurance (BFSI) segment. The retail vertical also saw lower growth during the quarter. In terms of geographies, continental Europe registered 15.9% year-on-year growth in constant currency.

The IT major saw 6.8% year-on-year growth (1.25% sequential growth) in revenues in constant currency terms in the third quarter, riding on a 17.1% year-on-year growth in the life sciences and healthcare segment. TCS’s operating income in constant currency terms rose 5.4% sequentially and 4% annually to $1.4 billion.

In terms of growth metrics, rival Infosys continued to do better in the quarter-ended December, registering a 9.5% growth year-on-year. However, TCS’s operating margin came in 310 basis points higher than Infosys for the same period. “We have expanded operating margin (by) 100 basis points in this quarter, partially aided by the currency side, but a lot of it coming from strong execution,” said Rajesh Gopinathan, CEO, TCS.

The company reported a 2.25% sequential (6.7% y-o-y) growth in revenues at Rs 39,854 crore in the quarter ended December, marginally beating estimates. Bloomberg consensus estimates had pegged the revenue for the period at Rs 39,835.71 crore. North America grew at 4.1% y-o-y in constant currency terms. The BFSI segment saw muted sequential growth of Rs 15,483 crore, due to continued headwinds in large banks across North America and the UK.

The overall order book for the quarter was about $6 billion, Gopinathan told analysts on a conference call following the result announcement.

“North America accounted for $3.3 billion and BFSI was at $1.3 billion. Retail order-book was $860 million. Our pipeline continues to be very strong and very nicely distributed by vertical and geographical margins,” Gopinathan said. The company expects currency headwinds to continue going forward, V Ramakrishnan, chief financial officer, told analysts.

The manufacturing vertical grew 3.2% sequentially (9.2% y-o-y) to `4,171 crore. The communications, media and technology business grew 3.5% sequentially (9.5% y-o-y) to `6,608 crore in the quarter-ended December.

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