Mumbai: While India’s information technology (IT) service providers continue to post a mixed bag of results, India’s largest software exporter, Tata Consultancy Services Ltd (TCS), currently leads the tier I pack with 5% volume growth, followed by HCL Technologies Ltd’s 4.5% and Infosys Ltd’s 3.8% volume growth for the three months ended September.
On Friday, TCS met analyst expectations by posting a 49.2% rise to Rs.3,434 crore in its consolidated net profit for the three months ended September compared with the year-ago period and a 34.3% increase in revenue to Rs.15,621 crore. Sequentially, its revenue rose 5.1%, while net profit grew 3.5%.
In dollar terms, too, TCS’s revenue at $2.85 billion was up 13% from the year-ago period and 4.6% sequentially.
TCS also announced that Rajesh Gopinathan will take over as chief financial officer (CFO) after incumbent S. Mahalingam’s retirement in February 2013. Gopinathan was appointed deputy CFO effective Friday.
On 12 October, Infosys had not only disappointed the markets by its poor showing, but also by announcing that CFO V. Balakrishnan would give up his position from 31 October and be replaced by vice-president (finance) Rajiv Bansal.
TCS’s results are in line with estimates, according to Dipen Shah, head of private client group research at Kotak Securities Ltd. The 5% volume growth is encouraging, especially coming on the back of a 5.3% growth in the June quarter, he added. “Like-to-like realizations have remained stable, which is also a positive. Investments in employees and projects should lead to sustained growth in the future though it has had an impact on margins in 2Q,” said Shah.
Analysts were happy that the TCS management remains optimistic on the macro front (since TCS does not provide guidance). TCS is seeing increased spends in discretionary services, which is in contrast to cautious comments by industry peers. “This is likely a reflection of deeper client penetration, superior delivery along with a broad presence across services. We maintain a positive bias on the stock over the medium term,” said Shah.
The company declared a second interim dividend of Rs.3 per share. The management also announced it will merge its business processing unit e-Serve with itself as part of a consolidation exercise at a swap ratio of 4:13.
The results were declared after market hours. The stock fell 1.14% to end at Rs.1,290.30 on Friday on BSE where the benchmark Sensex lost 0.58% to close at 18,682.31 points and the IT index declined 0.27% to end at 5,700.37. For the quarter ended September, TCS gained 1.29%, while the Sensex rose 7.65% and the IT index increased by 2.73%.
Growth in the September quarter, according to the TCS management, was broad-based and seen across all industry segments led by manufacturing, retail, telecom and BFSI (banking, financial services, insurance).
Major markets were led by the UK and Europe, while growth markets such as India, Asia-Pacific, Latin America and the Middle East performed well, according to TCS managing director and chief executive officer N. Chandrasekaran.
In the September quarter, TCS added 41 clients, closed nine large deals, and added 18,654 employees to take its headcount to 254,076. Attrition of its IT services unit stands at 10.2%.
The company’s North America business saw 3.6% growth, while the Latin America business grew 3.3%. The Americas accounted for 56.2% of TCS’s total revenue. Europe accounts for 26.6%—the UK (17.1%) business grew 5.7%, while continental Europe business grew 4.7% to account for 9.5% of the company’s revenue. The India business also grew 11.7% and now accounts for 7.5% of TCS’s revenue. The BFSI business grew 4.7% sequentially to account for 42.8% of its revenue, while telecom (10.3%), retail and distribution (13.4%), and manufacturing (8.2%) grew 5.2%, 7% and 9.5%, respectively, in the September quarter.
Mixed results bag so far
The September quarter results of Infosys, India’s second largest IT services provider, were decent on the revenue front, but the most disappointing aspect was the decline in operating margin by around 150 basis points (bps) from the preceding quarter, said Angel Broking Ltd analysts in a 12 October report. A basis point is 0.01%.
Lodestone Holding AG acquisition. In September, Infosys bucked its traditionally conservative acquisition approach by purchasing Switzerland-based SAP consulting firm Lodestone for $348 million.
HCL Technologies reported a weaker-than-expected revenue performance, but a better-than-expected margin performance despite margin headwinds, said Prabhudas Lilladher Pvt. Ltd in a 17 October report. Its volume growth at 4.5% was in line with expectations. The management remains confident about margins. HCL Tech reported constant-currency growth of 2.9% from the preceding quarter, while its operating profit margin was little changed at 19.4%, with headwinds such as forex (-10 bps) and wage hikes (-80 bps) offset by tailwinds from efficiencies and utilization (+72 bps), and general and administrative leverage of 18 bps.
Wipro Ltd, another tier I company, will declare results on 2 November. However, April-June quarter volume growth at 0.8% was poor in comparison with Infosys’s 2.9%, HCL Tech’s 1.8% and that of TCS at 5.3%, and analysts are not expecting too much improvement.
In the mid-cap segment, Persistent Systems Ltd’s second quarter results were around 3% and 10% higher than consensus for revenue and profit after tax growth, respectively, according to forecasts by Prabhudas Lilladher analysts. Intellectual property-led revenue growth gave cushion to margin headwinds from wage hikes, they added. Infotech Enterprises Ltd reported a decent set of results, with an overall volume growth of 3.9% quarter-on-quarter.