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TCS result beats market expectations

TCS result beats market expectations
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First Published: Sat, Jan 16 2010. 01 15 AM IST

Bullish: TCS chief executive Natarajan Chandrasekaran. Abhijit Bhatlekar / Mint
Bullish: TCS chief executive Natarajan Chandrasekaran. Abhijit Bhatlekar / Mint
Updated: Sat, Jan 16 2010. 05 24 PM IST
Mumbai: Strong growth in the banking, financial services and insurance (BFSI) vertical in the crucial US market and increased business from its top client Citigroup Inc. helped the country’s largest information technology (IT) services exporter Tata Consultancy Services Ltd (TCS) comfortably beat market expectations, reporting a 2.9% growth in revenue for the three months to December over the September quarter.
Bullish: TCS chief executive Natarajan Chandrasekaran. Abhijit Bhatlekar / Mint
The company’s revenue grew 5.1% from Rs7,277 crore in the three months to December 2008, to Rs7,649 crore in the December quarter of the current fiscal. Profits grew 33.9% from Rs1,362 crore in the December quarter of the previous fiscal to Rs1,824 crore in the current fiscal.
Sequentially, TCS’ revenue grew from Rs7,435 crore in the September quarter to Rs7,649 crore in the December quarter, while profits grew 11.1% from Rs1,642 crore to Rs1,824 crore over the same period.
Integration work related to merging of large financial institutions hit by the credit crisis in the US had generated business for Indian IT firms. The BFSI vertical contributed around 45% of TCS’ revenues.
Market analysts had expected the company’s dollar revenue to grow by between 3% and 5%, while it actually grew by 6.6%. A Mint poll of eight brokerages had estimated TCS revenues to be flat over the previous quarter while its profits were expected to fall around 4.2%.
On Tuesday, India’s second largest IT exporter Infosys Technologies Ltd reported a sequential growth of 6.8% in dollar revenues, supported by new business from BFSI in the US.
Hit by rupee appreciation—3.3% over the quarter—Infosys’ rupee revenues grew at a slower pace of 2.8% over the previous quarter.
For TCS, in the three months to December, pricing—hourly rate at which clients are billed—remained flat.
In the previous quarter, the pricing had declined by 1.4% while volumes had grown by 5%. However operating margins (Ebitda, or earnings before interest, taxes, depreciation and amortization) improved by 126 basis points due to effective cost-control measures.
On the last 12-month basis, as a percentage of the company’s total revenue, Citigroup contributed 8.1% to TCS revenue at the end of December, while it was 6.8% at the end of September and 5.1% at the end of June.
However, the company’s chief financial officer S. Mahalingam said that it is not accurate to conclude that the growth was on account of the top client alone.
What surprised analysts, however, was the unexpected growth that TCS appears to have derived from services that are traditionally considered to be discretionary spending, which enterprises had curbed drastically in the wake of the economic crisis.
“On a sequential basis, enterprise solutions has grown by 8.4% and consulting has grown by 39.5%, and both of those are discretionary spend,” said Nitin Padmanabhan of Centrum Broking Pvt. Ltd. “That came as a bit of a surprise.”
In the previous quarter, TCS’ revenue was driven by business from the BFSI sector as well as business from utilities and pharma sectors. TCS gets around 53% of its revenue from clients in the US.
Verticals such as manufacturing, and telecom and hi-tech, which had shrunk in the September quarter, have stabilized in the December quarter and the company management expects the business from these verticals to pick up in the coming quarter.
“We see some recovery in the telecom and manufacturing verticals and anticipate growth to pick up in the coming quarters,” said TCS chief executive N. Chandrasekaran. During the quarter, TCS has secured a $100 million (Rs457 crore), five-year deal from a company in the manufacturing sector. About the deals that the company is actively pursuing, Chandrasekaran said that TCS was competing for “20 large deals”.
At the end of the December quarter, TCS had 149,654 employees, against 141,962 in the previous quarter.
According to Ajoy Mukherjee, vice-president and head of human resources, TCS plans “aggressive talent acquisition” given the demand outlook. As part of campus recruitment, TCS has already given 5,500 offers. Of the around 24,000 offers that the company had given during the previous year, Mukherjee said nearly 70% had been accepted and by the end of the fiscal year, all the offers would be honoured.
The list of TCS clients include Merrill Lynch and Co., Prudential Financial Inc., American Express Co., Nestlé SA, Nielsen Co., BT Group Plc, General Electric Co. and Boeing Corp.
The company’s quarterly numbers were announced after the markets closed, but TCS’ shares ended at Rs791.80 on Friday, gaining 1.23% on a day when the Sensex lost 0.17% to close at 17,554.30. points.
P.R. Sanjai contributed to this story.
lison.j@livemint.com
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First Published: Sat, Jan 16 2010. 01 15 AM IST