The Hindu Business Line : TCS delivers on volume growth

Tata Consultancy Services Ltd has managed to better market expectations of its financials for the June quarter of the current fiscal. It has also fared better than Infosys on parameters such as volume growth and top client ramp-up.

For the June quarter, TCS’ revenues grew by half a per cent sequentially to Rs 7,207 crore, while the net profits increased by over 15 per cent to Rs 1,534 crore.

Gains in the form of much lower forex losses, higher interest income, and mutual fund redemptions, all totalling Rs 26 crore, compared with the Rs 133-crore loss in the March quarter, helped net profits substantially. Overseas expenditure has also been kept under check.

From an operational perspective, a steep increase in the offshore component of revenues, a ramp-up in top-client revenues, and improved contribution from infrastructure services are the key positives for TCS during the quarter that may have aided efforts to preserve margins.

Business outlook

TCS has increased its offshore component of revenues by 2.7 percentage points to 50.4 per cent to optimise costs. This follows a similar move in the March quarter as well. Utilisation has been increased to 71.3 per cent. This on the back of a volume growth of 3.5 per cent which is healthy compared to the decline that Infosys witnessed, while pricing has witnessed moderation.

Revenues from its top-client have increased by a percentage point. Repeat business from existing clients has increased by 4.1 percentage points to 99.7 per cent. Together these facts indicate that client-mining has been healthy.

Infrastructure services — higher billed services compared to application services — have increased its contribution to revenues. The Banking Financial Services and Insurance (BFSI) vertical has also increased its share in the overall revenue pie. With clients such as Citigroup showing signs of stabilising, this vertical, the largest IT outsourcer, may once again witness increased traction.

The decline in the annual run-rate of some of its large clients may, however, be matter of concern. Tax incidence, which is currently at 14.6 per cent levels, may move to the 17 per cent region for the full year, according to the management, and may strain margins. This is likely to change as the transition from current facilities to special economic zones happens over the next two-three years.

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