TCS eyes double-digit growth in FY19 after Q2 net profit jumps 22.6%

Continuing with its growth story, Tata Consultancy Services, the country's largest information technology services company, met the Street's expectations for the September quarter's financial numbers.

And, for the first time after many quarters, it reported double-digit revenue growth in constant currency (CC) terms, apart from widening the profitability.

In the quarter, the second one for this financial year, the Mumbai-headquartered company reported a 22.6 per cent rise in consolidated net profit at Rs 79 billion. From the earlier quarter, the net profit grew 7.6 per cent.

Revenues in reported currency grew 20.7 per cent to Rs 368.5 billion. In CC terms, it rose 11.5 per cent from a year before and 3.7 per cent from the June quarter.

In dollar terms, the company again reported double-digit growth, after having done for the June quarter, too. Revenues grew 10.5 per cent to a little over $5.2 billion. Sequentially (from the earlier quarter), dollar revenues grew 3.2 per cent.

The management exuded confidence on sustaining the double-digit growth in revenue for the entire financial year. The sequential revenue growth in CC terms was, however, lower than analysts’ estimate of 4.2 per cent.

“Q2 has been a landmark quarter in many ways. Two years back, we slipped from our typical double-digit growth trajectory and we've been very focused since then on getting back on the trajectory. We now have the numbers and momentum to ensure this double-digit growth stays on track for the rest of the year,” said Rajesh Gopinathan, managing director.

Strong growth in the BFSI (banking, financial services and insurance) and retail verticals, along with the acceleration seen in the US and Europe businesses, were key drivers of this strong show. BFSI, its largest revenue generating division, grew 6.1 per cent from a year before and 3.5 per cent in sequential terms. It accounted for 31.2 per cent of total revenues.

Similarly, retail & CPG (consumer packaged goods), 15.9 per cent of the revenue pie, grew 15.6 per cent from a year before basis and 3.4 per cent in sequential terms. The firm also reported 60 per cent growth in its digital services; this contributed 28 per cent to total revenues, as against 25 per cent the previous quarter.

“Revenue growth was driven by expanding demand for digital transformation across verticals and continued acceleration in BFSI and retail,” said Gopinathan.

In the quarter, revenues from North America grew 8.1 per cent over a year, 22.8 per cent in Britain and 17.4 per cent in continental Europe.

Operating margin rose 150 basis points (bps) over the June quarter to 26.5 per cent, primarily on the back of a depreciating rupee. While 120 bps of addition was attributed to the currency gain, 30 bps of expansion came from operational efficiency measures.

“Even as we expand our investments to build on our lead in the digital space, our disciplined operations and improving growth trajectory, along with a supportive currency, make our margins resilient,” said V Ramakrishnan, chief financial officer. TCS had earlier said it expected a 26-28 per cent operating margin range for this financial year.

In the September quarter, the company added four customers in the more than $100-million range (customers which give annual revenue of $100 million and more each) and seven in the above $20-million range.

After going slow in hiring for some quarters, TCS saw a net addition of 10,227 employees, the highest in three years. This took the overall count to 411,102. Employee attrition was unchanged at 10.9 per cent.

The company declared a dividend of Rs 4 a share. At Rs 1,979.75, the stock ended 3.1 per cent lower on the BSE at the end of trading session, while the benchmark index lost 2.2 per cent.