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TCS volume growth fastest in 7 quarters

TCS beats analysts’ estimates as net profit rises to Rs.3,831 crore on 21% growth in revenue to Rs.17,987 crore
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First Published: Thu, Jul 18 2013. 05 26 PM IST
The strong results bode well for the IT sector’s fortunes in the second half of 2013, coming after rival Infosys Ltd announced similarly buoyant numbers. Photo: Mint
The strong results bode well for the IT sector’s fortunes in the second half of 2013, coming after rival Infosys Ltd announced similarly buoyant numbers. Photo: Mint
Updated: Fri, Jul 19 2013. 09 26 AM IST
Mumbai: India’s largest software services company Tata Consultancy Services Ltd (TCS) beat analysts’ estimates with a 15.5% rise in consolidated net profit as volumes surged to their fastest in seven quarters backed by growth in the US.
Net profit rose to Rs.3,831 crore in the June quarter, as revenue jumped 21% to Rs.17,987 crore from the year earlier. Over the preceding March quarter, profit rose 5.9% and sales 9.5%. TCS was forecast to post a net profit of Rs.3,743.90 crore, based on the median of 38 analysts’ estimates compiled by Bloomberg. Sales had been estimated at Rs.17,627.90 crore.
The strong results bode well for the information technology (IT) sector’s fortunes in the second half of 2013, coming after rival Infosys Ltd announced similarly buoyant numbers.
In dollar terms, TCS’s consolidated net income at $668 million was up 10.6% from a year ago while revenue at $3.16 billion rose 16%.
“We have delivered another solid quarter, driven by the highest volume growth in the past seven quarters,” said chief executive officer and managing director N. Chandrasekaran. “It has been an all-round performance with strong revenue growth across markets led by the US. Our investments in Europe continue to gain strong traction with customers and helped us deliver industry-leading growth this quarter.”
The company added two $100 million clients in the June quarter.
TCS has reported yet another solid quarter, according to Nimish Joshi, analyst with brokerage firm CLSA India. He said the 4.1% growth in dollar revenue over the preceding quarter, was spread fairly across industry verticals despite over 1% sequential hit from lower hardware sale. He added that the 6.1% sequential volume growth (this was a concern for many in the last few quarters) and improvement of 50 basis points (bps) in sequential margin (wage hikes balanced by currency), “all point towards TCS maintaining its leadership position in the sector”.
Joshi said, “While the impending immigration Bill, if passed in current form, could be disastrous and an overhang on sector-wide valuations, continuation of such financial outperformance will likely help TCS maintain its premium valuations within the sector. Money-making in TCS hereon remains a function of earnings growth rather than any valuation re-rating. We retain our outperform rating on the stock.”
Growth was seen across all industry segments led by life sciences, retail, telecom and BFSI (banking, financial services and insurance). While BFSI grew 8% over the preceding quarter, telecom rose 13.1% and retail and distribution was up 14.9%. The life sciences vertical saw a 17.8% growth in the same period.
Major markets grew led by the US, Europe and the UK alongside growth in emerging markets such as Latin America and the Asia Pacific. North America grew 11.5% quarter on quarter while the UK business saw 11% growth. India business, however, fell 4.6% from the preceding quarter.
During the quarter, TCS completed the acquisition of Alti, one of the top-five system integrators of SAP solutions in France with several top French corporations in the banking, financial services, luxury, manufacturing and utilities sectors as its key customers.
On the human resources front, there was a total gross addition of 10,611 people (net addition of 1,390) taking the total employee strength of the company to 277,586 on a consolidated basis as on 30 June. The utilization rate (excluding trainees) was at 82.7% and that including trainees was 72.5%. The attrition rate dropped further sequentially to 10.52% including BPO, from 10.57% in the last quarter.
Chandrashekaran said “pricing remains stable”.
According to Rumit Dugar, IT and telecom analyst with Religare Institutional Research, TCS’s revenue growth was driven “by a solid volume growth of 6% qoq” (quarter on quarter).
“Overall, a solid set of results from TCS beating on volumes and margins. EBIT (earnings before interest and tax) margins came in at 27%, better than our estimates of 26.6% leading to a solid 4% beat at the EBIT level. PAT (profit after tax) was in line with expectations due to lower other income,” he said.
“We continue to believe that industry leading growth and superior execution would continue to support TCS’s premium valuations (20x FY14) vs. the sector.”
On 12 July, India’s second-largest software exporter Infosys, which recently brought its iconic founder N.R. Narayana Murthy out of retirement to turn around its fortunes, posted better-than-expected June quarter profit of Rs.2,374 crore, up 3.7% from a year ago, and maintained its full-year revenue forecast. Its revenue rose 17.2% to Rs.11,267 crore.
In dollar terms, Infosys’s net profit increased to $418 million from $416 million last year and revenue rose 13.6% to $1.99 billion.
Infosys’s volume growth at 4.1%, however, was lower than TCS’s 6.1% increase in the June quarter, and its pricing declined by 0.7% during the quarter.
Following its latest earnings announcement, the Infosys stock has risen 10.8%, while TCS has increased by 6.4% in the same period.
TCS declared its quarterly results on Thursday after market hours. The stock lost 0.82% to close at Rs.1,660.15 a share on BSE, while the benchmark Sensex gained 0.9% to end at 20,128.41 points and the BSE IT index gained 0.38% to close at 6,903.51 points. The TCS stock lost 3.4% of its value in the June quarter while the Sensex gained 2.97% and the BSE IT index fell 9.15%.
India Ratings and Research (Ind-Ra), in its July report, maintained its stable outlook on the Indian IT services industry for the second half of calendar 2013.
The depreciating rupee will help IT companies absorb wage increases better and improve their competitiveness, it said. The rupee lost 8.6% to the dollar in the June quarter, dropping to a record low of below 61 against the US currency.
Software body Nasscom has forecast a 12-14% growth in revenue for IT companies in fiscal 2014.
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First Published: Thu, Jul 18 2013. 05 26 PM IST
More Topics: TCS | profit | IT sector | earnings | Infosys |