Tata Consultancy Services posts strongest growth in 9 years

Reporting stellar set of numbers and strongest growth in the last nine years for a seasonally weak third quarter, the country’s largest software services exporter TCS on Friday reported a good set of earnings for the October-December 2020 period, with constant currency (CC) revenue growth of 4.1% sequentially.

The net profit increased 3.2% to Rs 8,701 crore ahead of Bloomberg consensus estimates of Rs 8,594.10 crore.

The recovery that started from the second quarter itself continued into the third quarter performance, while the company management said that it will be back to double digit growth numbers in FY22 as normalcy in operations is returning.

The revenues during the quarter increased by 4.7% quarter-on-quarter to Rs 42,015 crore, which was also above Bloomberg consensus estimates of Rs 41,230.58 crore.

Operating margins, stood at 26.6%, 40 basis points higher sequentially, despite the salary hikes rolled out during the quarter. The company reported an operating income or Ebit (earnings before interest and tax) of Rs 11,184 crore, a 6.35% sequential growth. It was much above analysts estimates of operating income of Rs 10,465.12 crore. The rise in margins was commensurate with the increase in revenues witnessed by the company, a broad-based growth across sectors and strong execution.

Rajesh Gopinathan, CEO and managing director, TCS said, “In the seasonally weak quarter we are happy to have registered this all round performance and very pleased to draw a line under a year which has been one of the most challenging”.

He added that on the company’s targets of getting back to year-on-year revenue parity by Q3 and year-on-year margin parity by Q4 have been achieved. “I am happy to share that with the performance this quarter on CC revenue terms we have now achieved the y-o-y revenue parity and on the margin side, both on operating margins and CC margin adjusted for an impact of currency of about 1.5 percentage points, we have achieved margin parity to Q4 levels in this Q3 itself.” He also added that in the next financial year the company will be back on double digit growth trajectory on the revenue front.

“In this period of extreme volatility, we can now see that we are getting back to normal trajectory,” he said.

Gopinathan said that TCS has seen strong traction on customer acquisition and deal flow during the quarter. In aggregate, the company had a TCV of $6.8 billion, which still does not include one of the large deals announced in Germany. Deal flow across markets and segments continues to be strong. Both BFSI and North America have had all time high TCVs, he added.

On a segmental perspective, all verticals showed good sequential growth, led by manufacturing at 7.1%, BFSI by 2%, life sciences and healthcare at 5.2%, communications and media by 5.5% and retail and CPG by 3.1%.

He added that the company saw broad-based growth across segments both geographical as well as vertical side. “Our largest market North America is nicely picking up on the growth momentum and we registered 3.3% sequential growth in North America. Continental Europe continues on a very strong run at 2.5% and positive y-o-y. Similarly in UK, where our significantly differentiated positioning continues to allow us to play in a volatile market and second sequential quarter of strong growth at 4.5%,” he said.

V Ramakrishnan, chief financial officer, TCS said the margins were aided by efficiencies on operational front and benign currency movement, despite some gyrations witnessed during the quarter.

On the HR front, TCS’ consolidated headcount stood at 469,261 as of December 31, 2020. In Q3, its IT services attrition rate (LTM) was at 7.6%.