Q2FY19: TCS turns in good show, weak rupee helps

By: | Published: October 12, 2018 3:58 AM

The company registered a consolidated net profit of Rs 7,901 crore, up 7.6% quarter-on quarter in line with analysts’ estimates.

Q2FY19: TCS turns in good show, weak rupee helps

On the back of winning customers for its digital offerings and benefiting from the slide in rupee against the dollar, the country’s biggest software exporter, Tata Consultancy Services (TCS) on Thursday posted a strong set of numbers for the July-September quarter.

The company registered a consolidated net profit of Rs 7,901 crore, up 7.6% quarter-on quarter in line with analysts’ estimates. Revenues during the period beat estimates at Rs 36,854 crore, increasing 7.6% from the June quarter. Revenues in dollar terms were up a reasonably good 3.2% at $5.2 billion.

Operating margins stood at 26.5%, up 149 basis points on a sequential basis, which was highest in last 11 quarters, according to Bloomberg data. Of this, 120 basis points was contributed by currency gains while 30 basis points came in through operational efficiencies. The company reported an operating profit or ebit (earnings before interest and tax) of `9,771 crore, a rise of 13.9% on a q-o-q basis.

With a revenue growth of 3.7% in cross-currency terms, Rajesh Gopinathan, CEO & managing director, TCS, said that it makes the company’s full-year revenue growth in terms of constant currency at 11.5%, bringing it back on the double-digit growth trajectory.

Speaking at the post earnings conference, Gopinathan said that almost two years back, the company “stepped down” from its typical double digit growth trajectory and since then the management team has been focused on getting back the double digit growth. “We now have the numbers on the board and the momentum to ensure that the double digit trajectory continues for the rest of the year and that has been big part of our strategic focus,” he said.

While Gopinathan did not elaborate on whether the growth momentum would be sustainable in the next financial year, he said that with this kind of growth the company will be exiting Q4FY19 in a much better manner and also enter the next financial year with a higher momentum. “The company now has the strategic space to shift focus into the medium to long term and execute the business transformation and Business 4.0 journey,” he added.

V Ramakrishnan, chief financial officer, TCS said though sharp swings in the currency movements poses a challenge, there is no change in the hedging policy as of now.

While the rupee slid by 5.6% against the dollar during the quarter, the contribution of digital business to total revenue increased to 28% against 25% during the same period last year.

Beating its earlier trends of muted hiring, during the quarter TCS recorded net additions of 10,227 employees, which is the highest in 12 quarters, which according to Gopinathan is calibrated to the demand that the company is seeing and majority were fresh hiring. “We see that the demand for services and demand for enhanced technology going together which merits these hiring,” he said. The attrition during the quarter stood at 10.9%, remaining unchanged sequentially.

TCS added four new clients in the $100 million plus band, seven in the $20 million+ band, 10 in the $10 million+ band and 11 in the $1 million+ band. Its revenue growth in North America accelerated further to 8.1%, versus 7% growth in Q1.

Gopinathan said that acceleration in banking and financial services industry is continuing and in terms of BFSI services which does not account for the big platform deals is also seeing steady acceleration growing from 3% to 6% on a year-on-year basis. Similarly for retail including the large deals is now at 15.6% on a y-o-y growth.

“Banking has turned around structurally and lot of the headwinds that banking faced are well past. However, retail is a more complex story. We are seeing resurgence of more traditional retailers in investing in technology and getting back and becoming much more competitive but structural challenges to the industry are still not over,” he said.

Meanwhile, Ajoy Mukherjee, executive VP & global head (human resources), TCS said the company last year had given offers to 20,000 plus campus hires and they have been joining since Q1 and Q2 and will be joining in the next two quarters as well.

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