TCS logs strongest Q3 growth in 9 yrs

The company’s net profit rose 7.2% from a year earlier to ₹8,701 crore in the quarter ended Dec 31

The country’s largest software services firm TCS on Friday reported a 7.2% rise in consolidated net profit to ₹8,701 crore for the December 2020 quarter. This is against a net profit of ₹8,118 crore in the year-ago period, Tata Consultancy Services (TCS) said in a regulatory filing. Revenue of the city-based firm grew 5.4% in the quarter under review to ₹42,015 crore from ₹39,854 crore in the corresponding period last fiscal, it added. This is the strongest December quarter growth in nine years, TCS said.

BENGALURU: Tata Consultancy Services Ltd (TCS) is targeting a double-digit growth in revenue this financial year on hopes that it will continue to benefit from the pandemic-induced boom in digital and cloud services.

Net profit at the Mumbaibased company rose 7.2% from a year earlier to ₹8,701 crore in the quarter ended December 31. Revenue grew 5.4% from a year earlier to ₹42,015 crore. Profit beat the ₹8,594.1 crore consensus estimate in a Bloomberg survey of 14 analysts.

Chief executive Rajesh Gopinathan said the company recorded its fastest revenue growth in nine quarters in the three months ended December 31 as clients embraced digital transformation because of the disruptions caused by Covid.

“Growing demand for core transformation services and strong revenue conversion from earlier deals have driven a powerful momentum that helped us overcome seasonal headwinds and post one of our best performances in a December quarter,” he said. “We are entering the new year on an optimistic note, our market position stronger than ever before, and our confidence reinforced by the continued strength in our order book and deal pipeline.”

TCS’s dollar revenue grew 2.1% from a year earlier to $5.7 billion on the back of strong deal closures across key segments. On a sequential basis, dollar revenues grew 5.1% indicating a gradual recovery in business from Covid disruptions.

TCS’s earnings validate analysts’ expectations of a Covid boost to the growth momentum of major Indian IT companies as the pandemic forced corporates to adopt various digital transformation initiatives. Overall, the IT sector is also expected to gain on the margin front due to lower travel and sub-contracting costs.

“TCS is well poised to achieve double-digit growth as some of the mega deals are making a comeback in Europe. Many of the European companies have not used cloud in a big way in the past, so this is a huge opportunity. Also, TCS has invested in several digital assets that can be utilized now,” said Sanchit Vir Gogia, chief executive and chief analyst at Greyhound Research.

TCS’s operating margin widened to 26.6% in Q3 from 26.2% in the preceding three months, despite rolling out salary hikes for all employees effective October 1. “Strong growth across all our verticals, and operational benefits from our SBWS (Secure Borderless Work Spaces) model allowed us to post the highest operating margin in the last five years, even after rolling out a salary increase this quarter,” said V Ramakrishnan, CFO, TCS. The company’s biggest financial services vertical grew 2% sequentially in constant currency, contributing to 31.3% of its Q3 revenue. Krithi Krithivasan, head of the vertical at TCS, said in a recent interview that the sector is witnessing strong growth in Europe as banks are undergoing digital transformation and renewing their existing partnerships.

The retail and consumer packaged goods sector grew 3.1% sequentially and contributed 14.5% to Q3 revenue. The attrition rate, on a trailing 12-month basis, improved to 7.6% in Q3 from 8.9% in Q2. The company employed 469,261 people as of December 31. Shares of TCS have been on the upswing amid investor optimism on the IT sector. The stock has surpassed its buyback price of ₹3,000 apiece, nearly touching the $12-trillion market capitalisation mark.

On Friday, shares of TCS rose 2.9% to ₹3,120.35 on BSE.