TCS profit rises 14.1%; misses Street estimates
Revenue increases by 16.8% YOY
Tata Consultancy Services (TCS), India’s largest IT services player, missed the Street’s estimates marginally as it reported 14.1 per cent growth year-on-year (YOY) in net profit and 16.8 per cent YOY rise in revenue in the second quarter (Q2) of financial year 2021-22 (FY22),
Its management was, however, upbeat on other news concerning the group, expressing delight at the announcement that Tata Sons had been chosen as the winning bidder for Air India. Rajesh Gopinathan, chief executive officer and managing director of TCS, said it was a nostalgic time for many Tcsers. “Almost all of us took our first international trip with Air India and we took a return ticket, which used to be our safety guard. We will try to do our best and contribute in whichever form we can to revive it to the glory it had as one of the best airlines in the world,” he added.
He further added: “I think it (the acquisition of
AI) underlines the optimism in the environment.
The nature of the transformation is possible by leveraging technology to make a big impact. We are the leading provider of technology services to the airline industry globally.
We’ve seen this kind of resilience in this customer segment over the last two years.” In Q2, TCS net profit rose to ~9,624 crore, a 6.8 per cent rise sequentially.
Revenue grew to ~46,867, a sequential increase of 3.2 per cent.
The firm’s top line and margin growth both missed Bloomberg estimates. According to a
Bloomberg poll, analysts had estimated revenue of
~47,339.2 crore.
The softness in growth was also evident in the total contract value (TCV), which came in at $7.6 billion, as against $8.1 billion in Q1, and $8.6 billion in Q2FY21.
In dollar terms, revenue for the quarter came in at $6.33 billion, a growth of 3.2 per cent sequentially. The Street was expecting this to be around 4 per cent. Operationally, though, the company reported broad-based growth with all sectors and geographies reporting double-digit growth. The management maintained that this was one of the best quarters. Gopinathan said: “The strong and sustained demand environment is a once-in-a-decade opportunity to position ourselves as the preferred growth and transformation partner for our customers. It’s broad-based growth across all our key segments and markets.”
Growth was led by North America, which was also the top revenue generator at 17.4 per cent YOY, followed by the UK at 15.6 per cent, and Europe at 13.5 per cent. The booster dose of growth came from India, which showed a strong return to growth at 20.1 per cent YOY.
The management acknowledged that unlike Q2FY21, there were no large deals, but small and medium ones across the spectrum. “Several large complex programs across verticals went live. These include programs such as contact-less payments, card-less withdrawal of cash from ATMS for leading banks, space-range-display transformation for retailers, one of the largest application transformations to public cloud native architecture, all leveraging our automation led G+T framework, agile methods and toolkit,” added N Ganapathy Subramaniam, COO and executive director.
TCS saw its attrition rates inch up to 11.9 per cent in Q2. The company had a net hire of 19,690, taking its total headcount of 528,748. It has not only surpassed its target of hiring 43,000 freshers in the first half, but is hiring 35,000 engineers over the next two quarters.
Supply-side constraints were also visible on the margins. In Q2, the operating margins came in at 25.6 per cent, which was an expansion of 10 basis points. Margins were impacted by higher expenses, currency headwinds, and higher subcontract usage.
Among verticals, industry reported double-digit growth, while banking, financial services and insurance (BFSI) saw 17 per cent growth YOY. Manufacturing rose 21.7 per cent, life sciences 19 per cent, and retail 19 per cent. Moreover, BFSI crossed $2 billion in absolute revenues during the quarter.