Good Europe, India show pushes TCS net up 10% to Rs 6,317 crore

Mumbai: In its best performance in six quarters, IT giant TCS Thursday reported 9.9 percent jump in net profit at Rs 6,317 crore for the April-June period, buoyed by multi-billion dollar deals in Europe and North American markets.

In dollar terms, net income stood at USD 944 million for the quarter under the Indian Accounting standards, or Rs 32.06 per share. Consolidated gross revenue on constant currency terms jumped 14.2 percent to Rs 29,305 crore or USD 4.36 billion, Chief Executive and Managing Director N Chandrasekaran said.

The numbers, however, are not so robust on a sequential basis.

While net profit slipped 0.4 percent due to forex volatilities and other externalities like 8-12 percent salary hike impacting margins, revenue rose just 3.1 percent.

However, Chandrasekaran described net profit as "the best in six quarters as the key numbers driving growth has been all-round."

"The very strong growth was driven by multiple factors with all our key vertical and markets, especially continental Europe, doing extremely well.

"Europe, excluding England, clipped at 2.8 percent, against 2.5 percent growth that North America saw. For Europe, this was the best quarter in over a year. Also, we had the best year in India at a growth of 8.5 percent," he said.

While net income slipped 0.4 percent from the fourth quarter of last fiscal, revenue inched up a paltry 3 percent, the company said.

Gross margins declined steeply to the tune of 98 basis points to 25.1 percent. On an annual basis, the dip in margins was steeper at 122 bps, Chief Financial Officer Rajesh Gopinathan said.

Net profit margin also declined both sequentially as well as annually by 73 bps and 69 bps, respectively to 21.6 percent, Gopinathan said. He attributed the fall to currency fluctuations and the 8-12 percentage points salary hike announced in the beginning of the fiscal year.

"The salary hike alone shaved off almost 200 bps from margins," he said, and parried a question on margin outlook, citing company policy.

Chandrasekaran attributed the good set of numbers to strong execution and accelerating customer adoption of cloud, big data and analytics which led to a broad-based growth across key markets and industries.

Revenue from its largest market North America inched up 2.5 percent to USD 2.33 billion, while that from England bettered at 3.8 percent to USD 650 million.

Continental Europe fared even better at 4.6 percent at USD 500 million.

But India was the star performer among the emerging markets, clipping at 8.5 percent or USD 270 million, which Chandrasekaran attributed to increased adoption of technology by corporates.

Chandrasekaran discounted the impact of Brexit on the firm's operations in England, saying Diligenta, its British arm, offers an essential service which will not be impacted.

Brexit has nothing to do with TCS' British operations as we offer an essential service there, he added.

On the overall impact of the Brexit, he said, "So far I have not heard any of my existing clients asking for a price revision or hinting at lower IT spends. And this, I say after spending close to 10 days in Europe after the Brexit vote and I did not get any negative feedback and so I have nothing to be cautioned against too much. But we are watching out."

"If the way Britain elected a new premier (Theresa May took charge yesterday), as against the expected October deadline, it shows that this will not be as bad as feared," he added.

In anticipation of the numbers, the TCS counter closed 1.2 percent up on the BSE at Rs 2,520.30, taking its m-cap to Rs 496,599.91 crore. However, the stock is down from its 52-week high of 2,769. Against this, the benchmark Sensex rose only 0.46 percent.

The market reaction was strange as traditionally, the TCS stock always closed in the red in the run-up to the earnings.

The company's cash/cash equivalents more than halved to Rs 421 crore from Rs 950 crore in the March quarter of the last fiscal. It also saw its total assets declining to Rs 13,592 crore from Rs 13,769 crore during the same period last year.

Giving a break-up of the income from its key business verticals, Chandrasekaran said though there have been many headwinds in the banking and financial sector, the vertical still managed to clip at 1.7 percent, chipping in with USD 1.76 billion in income. Manufacturing fared a little better with a revenue growth of 3.1 percent to USD 450 million.

The communications sector fared the best with a revenue growth of 7 percent at USD 490 million, followed by life-sciences and healthcare vertical which managed to clip in at 3.9 percent at USD 320 million in income, Chandrasekaran said.

"In fact, I am very happy with the performance of the life-sciences and healthcare vertical. So is the communications sector," Chandrasekaran added.