TCS reports 8.4% jump in Q2 profit, beats street estimates
Digital revenue up 5.9%; declares a dividend of Rs 7 per share

Beating street expectations, TCS has reported an 8.4 per cent sequential increase in consolidated profit at Rs 6,446 crore for the July-September quarter of this financial year (FY18), backed by strong volume growth and improved operational performance.

Consolidated revenue grew by 3.2 per cent to Rs 30,541 crore. Revenue growth in dollar terms was also up by 3.2 per cent at $4,739 million, while constant currency revenue growth was 1.7 per cent, driven mainly by digital service vertical.

TCS CEO & MD Rajesh Gopinathan said: “We experienced robust volume growth in Q2, driven by good demand across multiple industry verticals. Strong, broadbased client metrics this quarter demonstrates our increasing success with newer customers. Large deal wins this quarter, a good pipeline, and bottoming out of the retail sector softness positions us well.”

Digital revenue, which contributed 19.7 per cent to total revenue, saw growth of 5.9 per cent in constant currency in the second quarter.

TCS, the crown jewel of $104 billion Tata Group, declared a dividend of Rs 7 per share and set October 26 as the record date.

The TCS stock gained 1.92 per cent to close at Rs 2,548.55 on BSE on Thursday. The results were unveiled after the market hours.

Analysts at Emkay Global said the numbers are ahead of its estimates and welcomed the surge in the margins. According to Reuters, analysts’ average estimate was Rs 6,306 crore.

Operating profit margin came in at 25.1 per cent, an expansion of 170 basis points on sequential basis, but it was short of the guidance range of 26-28

per cent.

The company said it has added 1 client in $100 million category; 6 clients each in $50 million, $20 million and $10 million bands; and 28 clients in $1 million category.
“We continue to gain share in the fast growing digital spend of our customers, evident in our industry-leading digital growth in Q2. By sharpening our focus on individual components of the digital service stack, we have been able to bring to bear the full power of our contextual knowledge, research and innovation, and investments in location-independent agile, automation and cloud on our customers’ transformational imperatives and become a trusted partner in their Business 4.0 journeys,” Gopinathan said.

TCS is the first among India’s software services exporters to report earnings for July-September. Smaller rival Wipro is scheduled to report next week.

The software major witnessed strong revenue growth across verticals. With the exception of retail and CMI, all industry verticals grew above the company average, led by travel & hospitality (up 8 per cent, energy & utilities up 7.2 per cent) and life sciences & healthcare rose 3.6 per cent. BFSI accounts for more than 30 per cent of TCS revenues, while retail makes up about 13 per cent.

“In retail we are seeing a significant amount of traction. I think we should see a turnaround in retail in the next few quarters itself,” Gopinathan said. “Directionally it [BFSI] is positive but difficult to say when the turnaround in BFSI is likely to happen,” he added

Growth was mainly led by Europe (up 5.3 per cent), Latin America (up 5.7 per cent), APAC (up 3 per cent) and UK (up 2.5 per cent). North America grew by 1.4 per cent with continued softness in banking and retail.

“Rigour and discipline in our operations helped accomplish an impressive margin performance and progress along the profitability path we had outlined earlier. Our investment program remains geared for growth. Continued investments in digital design and transformational capabilities are paying off, and it shows in the strong growth in our Digital business,” V Ramakrishnan, chief financial officer, said.