TCS Now first Indian IT Leader to reach billion-dollar milestone for quarterly profit

Tata Consultancy Services as become the first Indian software services company to reach the billion-dollar milestone for quarterly operating profit, continuing its run of industry-leading performance during the second quarter of 2013-14.
By: Market Prophecy Financials
AJMER, India - Oct. 16, 2013 - PRLog -- India's largest software exporter whose operating margin crossed 30 per cent — an all-time high — on sequential sales growth of 5.4 per cent, was upbeat about its outlook for demand.

"This is a good environment for a technology company," said CEO N Chandrasekaran.

On Friday, India's second-largest software company InfosysBSE 0.75 % beat expectations with sales growth of 3.8 per cent, pointing to definite signs of revival in the industry's largest market the United States. Software industry body Nasscom has projected growth of 12-14 per cent for the year. "Demand continues to be strong. Our pipelines are good in Europe and discretionary spend continues to improve," Chandrasekaran said.

TCS becomes first Indian IT company to reach billion-dollar milestone for quarterly operating profit

TCSBSE 0.16 % posted double-digit growth in all the industry segments in which it operates. Ahead of the earnings announcement, the company's shares traded at an all-time high of Rs 2,259 on the National Stock Exchange before settling 0.15 per cent higher at Rs 2,216. With the stock having rallied close to 70 per cent in the year so far, analysts believe that further upsides may be limited. The Mumbai-based company said that it clocked sales of $3.33 billion (Rs 20,977 crore) while net profit grew by about 12 per cent to $748 million (Rs 4,702 crore).

Analysts had expected sales to grow at about 5 per cent. The number of clients that contribute more than $100 million to annual revenue jumped to 22 from 19 in the June quarter. Like others in the highly competitive industry, TCS also faces pricing pressure, especially as the traditional bread-and-butter business of writing software code and maintaining IT infrastructure for corporations becomes more commoditised and less profitable.

The moderate hiring pace, especially when utilisation is already high, could indicate growth slowing in the second half of the financial year, some analysts cautioned. "We model revenue growth of 3 per cent each in Q3 and Q4," said Kuldeep Koul of ICICI Securities. "Growth expectations may need to pause for now." The operating margins for TCS — the highest in the industry — was helped by the depreciation of the Indian rupee and a more efficient workforce.

"Strong volumes, currency tailwinds and firm execution helped us post industry-leading operating margins in this quarter," said Rajesh Gopinath, chief financial officer. The company posted volume growth of 7.3 per cent, a nine-quarter high, with utilisation rate — a measure of how many employees were actually working on billable projects — climbing to 83.4 per cent, the highest in the industry. "Whether this level is sustainable depends on the reinvestment," Harit Shah of Nirmal Bang said of operating profit levels.

"This quarter they took the entire benefit of the rupee depreciation. The rupee has also recovered from its lows. So this level might not be sustainable. I don't think there is really any upside from this point." TCS, the largest private sector employer in India, added 7,664 employees in Q2, taking the total headcount to 285,250 at the end of September.

The company expects to hire between 45,000 and 50,000 staff this year. At that level, the headcount will cross the three lakh by early 2014. Employee churn was stable at 10.9 per cent. That compares to a little over 17 per cent for Infosys, which has seen attrition rising in the recent quarters.

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Source:Market Prophecy Financials
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