However, wage hikes trim operating margins to the lowest level reported in the last four quarters
Tata Consultancy Services (TCS) on Tuesday reported a reasonably good set of numbers for the three months to June with consolidated net profit coming in at Rs 7,340 crore, up 6.35% quarter-on-quarter (q-o-q). However the IT services major’s operating margins (Ebit) at 25% for the June quarter was lower by about 40 basis points sequentially. This was the lowest margin reported in the last four quarters and attributed by the management partly to salary hikes. While TCS’ revenues in Q1FY19 rose to Rs 34,261crore, up 6.8%, sequentially, the company declined to reveal how much of this came from better volumes and how much from better prices. TCS’ volumes had grown by just 1.6% q-o-q in Q3FY18 and by 2% q-o-q in Q4FY18.
Revenues in constant currency terms in the June quarter were up 4.1 % q-o-q, which analysts said were satisfactory.
The company said that very sharp cross-currency movements during the quarter resulted in a top line benefit of positive 2.7% in rupee terms, but a significant -2.5% impact in dollar terms. The TCS stock ended Tuesday’s session at Rs 1,877, down marginally 0.56% on the BSE, ahead of the earnings announcement. Since January, the stock has run up a smart 39% compared with a gain of 26.3% for rival Infosys and just 6.4% for the benchmark Sensex. TCS now trades at a one-year forward price earnings multiple of 23.53 times while Infosys trades at 17.86 times.
Rajesh Gopinathan, MD and CEO, said on Tuesday the demand from the BFSI vertical, a key business area for TCS, was enthusing. “The medium-term outlook continues to be positive and the momentum that we see is definitely sustainable,” Gopinathan said at a press conference. He added that the big shift in the momentum in the BFSI space was emanating primarily from the banking space. Chief financial officer V Ramakrishnan said salary increases had affected margins by about 180 basis points.
“We closed at 25% because we were able to gain about 70 bps from operational efficiencies,” Ramakrishnan explained. Typically, TCS’ salary increases take place in Q1and the costs are recovered in the next couple of quarters. Ajoy Mukherjee, vice-president and global head, human resources, said hiring in Q1FY18 had been negative whereas this time it has been positive.
“We seeing growth and demand and, therefore, the hiring has been both at entry levels and across laterals,” Mukherjee explained. The company’s employee strength at the end of June was 400,875 after a net addition of 5,877 during the quarter. The Tata group firm announced a share buyback for as much as $2.4 billion last month. The company is one of two Indian corporations to have achieved a market capitalisation of $100 billion. Currently TCS is the only Indian stock to command a market cap of over $100 billion.