TCS profit surges 24% on US demand

TCS profit surges 24% on US demand

Mumbai: India’s largest information technology (IT) services exporter ata Consultancy Services Ltd (TCS) recorded a 24.3% rise in profit for the three months ended 30 June from the year earlier on robust demand in the US.

Profit rose to Rs1,906 crore, while revenue grew 14% to Rs8,217 crore at a time when the $60 billion (Rs2.8 trillion) Indian IT industry is cautiously watching the fragile business situation in Europe, its second largest market after the US.

“We are aware and very careful," said N. Chandrasekaran, chief executive officer and managing director, referring to concerns about the pace of recovery in the US and the possibility of a European slump. “While we remain alert about changing macro dynamics in many markets, our customer-centric business model is very relevant and helps us participate in the ongoing recovery."

Earnings were in line with expectations. A Mint poll of 10 brokerages had estimated profit at Rs1,852 crore and revenue at Rs8,284 crore.

The company added 36 new clients during the quarter and signed “10 large deals". It is chasing at least another 15 large deals currently. Even as profits declined sequentially, the analysts viewed the results positively.

“TCS results, in almost all parameters, make this a blow-out quarter for the company. An 8% q-o-q (quarter-on-quarter) volume growth (highest since September 2007 quarter) further validates the strength of the demand recovery and just a 36bps (basis points) q-o-q margin decline despite wage hikes indicates TCS’ improved cost-containment ability," noted Bhavtosh Vajpayee and Nimish Joshi, analysts at CLSA Asia Pacific Markets.

Shares of TCS rose 1.22% to close at Rs784.10 on Thursday on the Bombay Stock Exchange, while the exchange’s benchmark Sensex index lost 0.16% to close at 17,909.46 points. The results were announced after market hours.

“The revenue growth in dollar terms at 6.2% came in well above even the bullish estimates on the Street," said Rohit Kumar Anand, analyst with Pinc Research, the equities research arm of Pioneer Investcorp Ltd, a Mumbai-based brokerage. “Growth was evidently led by the US, but the firm did see its Europe operations growing, even if marginally."

On Tuesday, the country’s second largest software services firm Infosys Technologies Ltd had reported a 2.4% drop in profit. Infosys’ management cited higher tax-related costs and unfavourable movements in the exchange rate of currencies, such as the euro, the dollar and the pound, as reasons for the decline. TCS chief financial officer S. Mahalingam said: “Currency fluctuation had a negative impact of 1.09% on the firm’s profitability."

Both Infosys and TCS have reported a marginal slippage in pricing, a possible indicator that clients may be pressing for discounts. However, Infosys raised its full-year revenue forecast on account of robust demand in the US.

Even as TCS hired 10,849 workers in the three months to 30 June, it saw as much as 7,578 leaving in the same period. In the case of Infosys, the firm hired 8,859, while as many as 7,833 left the company.

The Indian IT industry has been struggling to retain employees as firms are scrambling for talent to meet rising demand.

TCS has raised its hiring target for the current fiscal from 30,000 to 40,000. Infosys raised its hiring target from 30,000 to 36,000 for the fiscal. To counter attrition, large IT firms have given average pay hikes of up to 15%, adding to already rising staff costs. The TCS management said that along with the promotion-linked pay hikes, the average rise in salary is expected to be in the range of 13%. According to Mahalingam, higher salary expenses had a negative impact of 2.15% on profitability.

The TCS management said that retaining talent remains one of the top-most priorities for the firm. “Given that everybody is still in hiring mode, we will see the current high levels of attrition continuing for another quarter or two, but it is not a major area of concern," Pinc Research’s Anand said.