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Business News/ Companies / Company-results/  TCS profit up 48%, upbeat about FY15
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TCS profit up 48%, upbeat about FY15

IT firm expects to win more contracts from Europe, US customers in year ahead; India business remains weak

A Bloomberg survey of 39 analysts had estimated net profit at `5,196.4 crore and 41 analysts had estimated net sales at `21,689.2 crore for TCS. Photo: MintPremium
A Bloomberg survey of 39 analysts had estimated net profit at `5,196.4 crore and 41 analysts had estimated net sales at `21,689.2 crore for TCS. Photo: Mint

Mumbai: Tata Consultancy Services Ltd (TCS) expects to win more contracts from customers in the US and Europe as they step up discretionary spending on software services in the current fiscal year, the company said on Wednesday after reporting a fourth-quarter profit jump of 48.2%, beating analyst estimates.

TCS, India’s largest software services provider, said it had not seen any slowdown in contract awards and that it continued to win business in areas of discretionary spending, making it feel “upbeat" about its performance in fiscal 2015, unlike closest rival Infosys Ltd.

On Tuesday, Infosys said discretionary spending by clients, which typically includes budgets for consulting, systems integration and analytics, had taken a hit in fiscal 2014, and cautioned that it still faced headwinds in the US and European markets as clients tighten technology budgets. It forecast an increase of 7-9% increase in dollar revenue this year.

“FY15 growth rate will be higher than FY14 growth rate and we find this encouraging," said Dipen Shah, head of private client group research at Kotak Securities. TCS does not provide annual or quarterly earnings forecasts.

TCS, which had cautioned analysts last month about muted growth in the March quarter, said net profit rose to 5,358 crore, a 0.5% increase from the preceding three months. Revenue rose 31.2% to 21,551 crore in the quarter ended 31 March from a year ago. It gained 1.2% over the December quarter.

A Bloomberg survey of 39 analysts had estimated net profit at 5,196.4 crore and 41 analysts had estimated net sales at 21,689.2 crore.

N. Chandrasekaran, chief executive officer and managing director of TCS, said the company was “upbeat that the next 12 months will bring many more opportunities for growth across multiple industries and markets".

Infosys’s volume grew a mere 0.4% in the March quarter while that of TCS grew by 2.6%. Analysts say the growth augurs well for the prospects of the $118 billion Indian information technology (IT) sector.

Wipro Ltd and HCL Technologies Ltd are due to report their March quarter results on Thursday.

TCS said it has switched to the International Financial Reporting Standards (IFRS) accounting method, effective 1 April. Fourth-quarter net income rose 51.5% from a year ago, according to the IFRS method. TCS’s March quarter dollar revenue rose 15.2% to $3.5 billion from the year-ago period while profit rose 33.6% to $861 million.

For the year ended 31 March, TCS’s revenue rose 29.9% to 81,809 crore from a year ago, according to the Indian GAAP (generally accepted accounting principles) accounting standard. Profit rose 37.7% to 19,164 crore, the company said.

Chandrasekaran said the company’s performance, among other things, was because of expansion “in newer markets like Europe during the past 12 months". He added that “strategic investments, including those in digital technologies are providing a compelling value proposition, as well as helping us anticipate and shape new market trends successfully".

Europe led growth in major markets, while the UK and North America continued to grow in line with the company average, TCS said. North America accounted for the highest contribution to revenue at 52.2% while UK contributed 12.1% to the total revenue.

The company’s India business continued to disappoint.

In the March quarter, the company’s India business accounted for 6.2% of the total revenue compared to 6.3% in the preceding quarter. In March, the TCS management told analysts that the India business will continue to remain weak.

According to an 18 March report by JPMorgan Equity Research, the TCS management suggests that except India, other emerging markets continue to see healthy demand. Also, in its 2015 fiscal revenue growth models, India is the only market which TCS expects to be weak, the report added.

On Wednesday, Chandrasekaran acknowledged that the India business “is soft since there are delays in deal closures and until elections are over, we expect the softness to continue".

In the March quarter, TCS signed nine large deals compared with four big ones by Infosys.

Chandrasekaran also said that pricing of services is “going to be flat" and TCS would grow volumes on the back of its “digital" businesses.

Discretionary spending for TCS, according to Chandrasekaran, will “mainly go towards digital technologies followed by simplification and regulatory and governance".

Rajesh Gopinathan, chief financial officer of TCS, said that “at this stage, currency is not a worry but we will continue to hedge our receivables completely".

According to an Emkay Global note on Wednesday, “TCS continues to do well in Europe (7.6% growth over the preceding quarter)... The company remains upbeat about growth prospects and maintains that FY15 will be a better growth year than FY14. All in all, we do not see any material change estimates".

The total employee strength of TCS stood at 300,464 professionals as of 31 March. In the March quarter, TCS added 9,751 employees. The company said its overall attrition rate was at 11.3%. TCS plans to add 55,000 employees in fiscal 2015, including 25,000 campus hires “for whom the offer letters have been already sent", said Ajoy Mukherjee, executive vice-president, head, global human resources.

TCS also plans to implement wage hikes. In India, the average wage increase for employees this fiscal will be 10% and over 14% for high-performers, said Mukherjee. In developed nations (US, UK, etc.), the wage hike will be 2-4% while developing nations (countries other than India) will see hikes of 4-6%, he added.

TCS will pay an 100% variable payout at an organizational level, according to Mukherjee. The hike in wages may impact margins in the first quarter of the fiscal 2015 but the company said “it will be offset through operational efficiencies throughout the year", Gopinathan added.

On Tuesday, Infosys said it has increased employee wages in India by 6-7% and by 1-2% for onsite workers, effective 1 April.

Shares of TCS fell 2.51% to 2,195 on BSE, while the exchange’s benchmark Sensex shed 0.92% to close at 22,277.23 points. The BSE IT Index declined 2.49% to close at 8,800.81 points.

TCS reported its earnings after the end of trading on Wednesday. In the March quarter, TCS shares fell 1.97% while the Sensex gained 5.74% and BSE IT Index dropped 3.22%.

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Published: 16 Apr 2014, 05:29 PM IST
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