TCS posts fastest profit growth in two years

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Tata Consultancy Services (TCS), India’s largest company by market valuation, clocked fastest profit growth in two-and-a-half years, beating quarterly profit estimates on increasing overseas demand for outsourcing services.

The company posted 49.6 per cent year-on-year growth in net profit at Rs 5,314 crore, as its diversified presence globally helped overcome tepid performance in India.

The operating margins for the quarter were higher by 29.7 per cent, while operating profit or earning before interest tax and depreciation was higher by 44.6 per cent year on year at Rs 6,335 crore. Revenues rose by 32.5 per cent to Rs 21,294 crore. The third quarter growth was driven by segments like life sciences and healthcare, manufacturing, media, travel and hospitality and telecom.

Managing director and chief executive officer N Chandrasekaran said he expected 2014 to be a stronger year, as customers execute their business plans in a relatively stable environment. He said the firm’s India business suffered in the December quarter due to lack of policy initiatives in an election year.

Of late, the company has been focusing on deals in the digital space. It believes the digital transformation will drive thought leadership and make a serious impact on the overall contribution to the business.

“With digital technologies rapidly changing the way an enterprise operates in multiple dimensions, our continuous investments position us well to help customers re-imagine their businesses,” Chandrasekaran said.

Dipen Shah, head of private client group research at Kotak Securities, said TCS’ results were in line with expectations.

“The 2.9 per cent volume growth in international business is encouraging. The management is pretty confident that the growth rates will be better in the next financial year compared with FY14,” Shah said.

The company made gross addition of 14,663 people, taking the total employee strength to 290,713. The attrition rate stood at 10.3 per cent, taking the net addition to 5,463. The utilisation rate stood at 84.3 per cent, which TCS believes is a comfortable level given the kind of projects in hand.

“The consistent high volume growth being reported by TCS reflects effective demand generation initiatives and efficient execution. The increase in employee addition target for the current financial year and the likelihood of revising the target for the next financial year reflect the extent of revenue visibility the company has,” Shah said.

TCS CFO Rajesh Gopinathan attributed the continued momentum in profitability to sustained investments in customer-facing initiatives globally. “We have been able to significantly increase our cash generation due to efficient working capital management. Our cash flow stands at Rs 5,400 crore, while cash and cash equivalents stood at Rs 18,500 crore.”

TCS’s presence across markets and services helped it overcome seasonal weakness in some markets. Europe led with 5 per cent growth due to continuous investments being made, while North America grew by around 2 per cent. Among growth markets, Latin America, APAC and MEA registered strong growth. The domestic business suffered due to volatility. Among service lines, business process services, enterprise solutions and global consulting were the top performers, said Gopinathan.


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