Tata Consultancy Services Q2 net profit up 16% to Rs 6,085 crore on strong digital biz

Mumbai: Country's largest IT services exporter TCS Tuesday met market expectations with an over 16 percent rise in net profit at Rs 6,084.66 crore for the quarter to September, backed by strong performance of its digital platform and recovery in Latin America and the home market.

Tata Consultancy Services' (TCS) order book grew 30 percent in the quarter, the highest ever for the company, giving the indication that things are looking good, managing director & chief executive N Chandrasekaran told reporters Tuesday evening.

"We have delivered accelerated growth in constant currency terms for Q2. Driven by great execution on the ground, our broad-based performance has been led by strong sequential growth in BFS, retail and life sciences verticals with Britain and North America leading the markets," he said.

"Our digital platform has been very high. Digital has seen tremendous traction. Our revenues from the digital platform has jumped to 13.3 percent from 12.5 percent quarter-on-quarter," Chandrasekaran, who was recently given another five-year term, added.

Observing that its attrition rate, which stood at 16.2 percent in Q2, has stabilised compared to previous quarter, the company said it is working on steps to further bring it down in third and fourth quarter of the fiscal.

"Attrition in absolute number has come down compared to last year. I am quite hopeful that all the initiative we are taking to control attrition will pay out. In Q3 and Q4 the attrition is expected to come down further," executive VP and global head Ajoy Mukherjee said.

"In India too attrition has come down compared to last quarter and month on month we have seen a decline," he added.

Meanwhile, Ravi Shenoy of Motilal Oswal Securities termed the numbers as per estimate.

"Traction in digital services and solutions which forms 13.3 percent of revenues continues to be strong with a 10.7 percent Q-o-Q growth. Margins were better than estimates at 27.1 percent, he said, adding the brokerage is remains neutral on the TCS counter, which closed 0.2 percent up at Rs

2,597.40 on the BSE which main index shed 0.21 percent today.

Another analyst Sarabjit Kour Nangra from Angel Broking

said, "TCS posted results below expectation on sales front and net profit, while the EBIT margins remained in line with expectations."

According to Sanjoy Sen of Aston Business School, "At a time when Indian IT providers are reinventing themselves as end-to-end business solution providers, harnessing disruptive digital technologies and establishing newer subsidiaries in new geographies to create strategic advantage for their global clients, it is not easy to hold fort on market expectations."

"One cannot really expect spectacular performance till these investments generate better fruits," Sen said adding the market sentiment will eventually judge this performance in comparative analysis with Infosys and dollar revenue growth.

Meanwhile, TCS recorded a gross addition of 25,186 people, the highest for a quarter. This takes the total employee strength to 3,35,620 on consolidated basis, making it the largest employer in this domain in the country.

Further, the Tata Group has further revised upwards its fiscal year-end hiring target to 75,000 from 60,000, on account of growth in last few quarters as well as to arrest attrition.

The employee utilisation rate (excluding trainees) was at 86 percent while the attrition rate stood at 16.2 percent.

"Our hiring continues to be strong with all-time high of over 25,000 employees joining us this quarter," Mukherjee said.

The company's total income from operations for the quarter rose 14.06 percent to Rs 27,165.48 crore as against Rs 23,816.48 crore last year. The figures are in Indian Gaap.

However, according to the company statement, as per IFRS, the net profit for Q2 stood at Rs 6,055.20 crore whereas the revenue was Rs 27,165.50 crore.

The company said core markets like North America and Europe grew smartly along with emerging markets like Latin America, India and Middle East and Africa.

TCS also announced a dividend of Rs 5.50 per share. Its operating margin for the quarter stood at 27.1 percent.

On the impact of higher exchange rate, Chandrasekaran said "It's no longer a dollar-rupee game. You see a 6-7 percent constant currency growth in a market and on dollar terms its flatish."

"So many currencies are involved now. So, I think its very very hard to just stick to only rupee and dollar. How the Australian dollar has moved, how the Brazilian real has moved, all these things you have to look at it in a year, so it is multi-currency," he added. 

Another analyst Sarabjit Kour Nangra from Angel Broking

said, "TCS posted results below expectation on sales front and net profit, while the EBIT margins remained in line with expectations."

According to Sanjoy Sen of Aston Business School, "At a time when Indian IT providers are reinventing themselves as end-to-end business solution providers, harnessing disruptive digital technologies and establishing newer subsidiaries in new geographies to create strategic advantage for their global clients, it is not easy to hold fort on market expectations."

"One cannot really expect spectacular performance till these investments generate better fruits," Sen said adding the market sentiment will eventually judge this performance in comparative analysis with Infosys and dollar revenue growth.

Meanwhile, TCS recorded a gross addition of 25,186 people, the highest for a quarter. This takes the total employee strength to 3,35,620 on consolidated basis, making it the largest employer in this domain in the country.

Further, the Tata Group has further revised upwards its fiscal year-end hiring target to 75,000 from 60,000, on account of growth in last few quarters as well as to arrest attrition.

The employee utilisation rate (excluding trainees) was at 86 per cent while the attrition rate stood at 16.2 per cent.

"Our hiring continues to be strong with all-time high of over 25,000 employees joining us this quarter," Mukherjee said.

The company's total income from operations for the quarter rose 14.06 per cent to Rs 27,165.48 crore as against Rs 23,816.48 crore last year. The figures are in Indian Gaap.

However, according to the company statement, as per IFRS, the net profit for Q2 stood at Rs 6,055.20 crore whereas the revenue was Rs 27,165.50 crore.

The company said core markets like North America and Europe grew smartly along with emerging markets like Latin America, India and Middle East and Africa.

TCS also announced a dividend of Rs 5.50 per share. Its operating margin for the quarter stood at 27.1 per cent.

On the impact of higher exchange rate, Chandrasekaran said "It's no longer a dollar-rupee game. You see a 6-7 per cent constant currency growth in a market and on dollar terms its flatish."

"So many currencies are involved now. So, I think its very very hard to just stick to only rupee and dollar. How the Australian dollar has moved, how the Brazilian real has moved, all these things you have to look at it in a year, so it is multi-currency," he added.