TCS consolidated net jumps 15.5% to Rs 3,831 cr in Q1

The company's total revenue, under Indian IFRS accounting standards, rose 21 percent to Rs 17,987 crore from Rs 14,869 crore in the corresponding period last fiscal.

Last Updated: Jul 19, 2013, 08:29 AM IST

Mumbai: Strong demand from across sectors and geographies coupled with forex gains helped Tata Consultancy Services (TCS) Thursday post a better-than-expected 15.5 percent jump in consolidated net profit at Rs 3,831 crore in the June quarter.

The company's total revenue, under the Indian IFRS accounting standards, rose 21 percent to Rs 17,987 crore from Rs 14,869 crore a year ago.

"It has been a great quarter in terms of volume. We have delivered a volume growth of 6.1 percent, the highest in the past seven quarters. If you look at constant currency growth, it's 4.83 percent and international revenue constant currency growth is 5.8 percent.

"So except for the domestic market, every other market has grown substantially," TCS Managing Director and Chief Executive N Chandrasekaran told reporters here this evening.

The IT giant said revenue gains on the rupee fall rose by 160 bps at Rs 760 crore, while impact on the margins has been Rs 160 crore which is an increase of 1.64 percent.

During the first quarter of FY14, the company added two USD 100 million clients, he added.

"TCS' results were above estimates. The highlight was the 6.1 percent volume growth, a 7-quarter high," said Dipen Shah, Head of Private Client Group Research, Kotak Securities.

While TCS beat the street on all counts, its immediate rival Infosys, which has been disappointing analysts for years, had last week also surprised market with a rise in net profit and by maintaining its guidance for the fiscal.

Infosys' Q1 net rose 4 percent to Rs 2,374 crore. The Bangalore-based software major kept its US dollar revenue guidance at 6-10 percent growth for the fiscal, and raised the rupee guidance upwards to 13-17 percent. No. 3 software exporter Wipro will announce its numbers July 26.

The quarter under review saw TCS operating margin rising 50 bps to 26.9 percent, Chandrasekaran said. He said the company saw excellent growth from verticals like banking, telecom, retail, manufacturing and life sciences.

Ahead of the numbers, TCS scrips shed over 1 percent on the BSE to settle at Rs 1,650.15, while the benchmark Sensex jumped 0.90 percent to a six-week high.

However, the domestic market, Chandrasekaran said, was
impacted by slower decision cycles and business mix being skewed towards system integration projects. Despite bagging Rs 1,100 crore deal from India Post among others, TCS revenues from domestic market declined about 5 percent sequentially.

"We have been able to deliver a margin improvement of 50 bps at 26.9 percent, which is an excellent position to be in because it is a quarter in which you face a huge headwind in terms of wage hikes and we have been able to work on that and show improvement in margins," he said.

Analysts said TCS result allays concerns about IT sector.

"Healthy set of TCS results shrugs off any concerns regarding health of the domestic IT industry which were raised due to weak performance by global players like Accenture and Oracle. We remain positive on TCS which has been a consistent performer," Angel Broking research analyst for IT and telecom Ankita Somani said in a note.

Shah of Kotak Securities, said "TCS' margins improved despite salary hikes, which is creditable. Net profits were higher than what we had estimated."

Chandrasekaran said TCS has a strong deal pipeline, which gives the company confidence of growing faster than industry body Nasscom's outlook of 12-14 percent growth for the over USD 100 billion IT sector in FY14.

"In terms of deal wins, it was very well rounded. They came from across industries whether it is banking, Government, utilities, pharma or manufacturing," Chandrasekaran said.

Talking about regulatory changes being seen in markets like Australia and Canada and the impending US Immigration Bill, he said clients are not expressing any concerns.

"One thing you have to expect in this current environment is there is an unemployment issue. Job growth is a major issue being faced by many nations. So you are seeing regulatory changes or discussions, dialogues... So, we just have to be aware of those situations and engage in the whole process and then see what changes we need to make to our business model as and when required," he added.

"Each market its currently happening, so there is no finality in terms of these are the new rules. So we all have to wait to see how the US Immigration Bill will move on and take appropriate actions," Chandrasekaran said.

On margins, TCS Chief Financial Officer Rajesh Gopinathan said, "There are broadly three major theme on the margins. We have had a 160 basis points (bps) benefit coming from currency depreciation, we have about 89 bps impact because of the absence of the one-off cost we had last quarter and we had about 170 bps impact due to the wage hike that we gave."

During the quarter, the company's gross employee addition was 10,611, while the net addition was 1,390 people. The overall employee utilisation rates stood at 82.7 percent.

The attrition rate for the TCS' IT arm stood at 9.55 percent, while that for the BPO unit was higher at 15.77 percent.

"We have been able to push our utilisation rates further. The on-boarding of current year's engineering graduate trainees will start from this quarter onwards," TCS Executive VP and global HR head Ajoy Mukherjee said.

For the reported quarter, TCS declared a dividend per share of Rs 4, Gopinathan said.

The company has applied for 1,340 patents, including 60 during the quarter under review. Till date, the company has been granted 90 patents.

During April-June period, TCS closed the acquisition of Alti, a French system integrator of SAP solutions. "The acquisition was closed on June 28. The P&L (profit and loss) will be added next quarter, but there was a Rs 500-crore goodwill impact included this quarter in our balance sheet," said Chandrasekaran.