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K. Venkatasubramanian

BL Research Bureau The March quarter results of TCS broadly followed that of Infosys Technologies in as far as the revenues and profits decline on a sequential basis are concerned. Compared to the December quarter, the revenues fell 1.5 per cent to Rs 7,172 crore, while net profit declined by 2.1 per cent to Rs 1,333 crore.

Cost optimisation held the key to margins, with TCS bringing a greater amount of projects offshore. But for this and other cost-control measures such as reducing travel expenditure and a lower tax provision compared to the previous quarter, the margin picture for TCS may have looked weaker.

The offshore component has been increased by 4.1 percentage points to 47.7 per cent currently, which optimises cost. Travel costs have been cut by 17 per cent sequentially to Rs 122.6 crore. A lower tax provision of Rs 190 crore compared with Rs 240 crore in the December quarter also helped the overall margin profile.

TCS has integrated the operations of Citigroup Global Services (CGSL), which it acquired last year, with itself. This has meant a near doubling (to 11.1 per cent of revenues) of BPO services’ component to overall revenues. While BPO services may bring in the volumes in the form of assured revenues from Citigroup, these are low-margin services. High-margin services such as consulting and engineering services have seen a sequential decline.

Taken together with the fact that increasingly, clients may come back for billing discounts/revisions and possibly cut their IT spends as well, means that TCS’ margins may come under increasing pressure. A 2.5 percentage points sequential decline in utilisation, at 69.4 per cent, and a lower level of repeat business means that volumes and client revenue ramp-up is not easy to come by.

Among its verticals of operation, though BFSI (Banking, Financial Services and Insurance) has increased contribution, other verticals such as manufacturing and telecom have seen a decline in contribution to overall revenues. This indicates that IT budgets may be under pressure from non-BFSI sectors as well.

A key positive for TCS, apart from the cost-optimisation achievement, from this quarter is that there has been volume growth and revenue inflow after the acquisition of CGSL. This apart, the revenues earned from fixed-price contracts, which ensures better realisations, has increased to 47.1 per cent from 45.5 per cent in the previous quarter.

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