TCS profit up 48% in Q4, but revenues grow slower

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Tata Consultancy Services (TCS), India's largest company by market value, beat street estimates by posting a 48.2 per cent jump in March quarter profit at Rs 5,358 crore, as it won more contracts in Europe and some emerging markets.

On a sequential basis, profit growth was flat at 0.5 per cent, while profit margins dipped by 19 basis points as the overall sentiment remained low due to an extended winter in the US and slow manufacturing growth in India.

The country's biggest IT firm reported a Rs 21,551 crore topline, as revenues grew slower at 31.2 per cent.

"The fourth quarter growth was led by comparatively strong performance in the US, Asia Pacific, the UK and the rest of Europe. India continues to be slow and will remain so for at least two more quarters as no deal closure is hap­pening," said N Chandra­sekaran, MD and chief executive officer of TCS.

He said financial services, retail and life sciences remained the key areas of growth, and the company expected major spends to happen in digital acquisitions, regulatory changes and governance, and overall simplification activities.

"Our strategic investments, including those in digital technologies, are providing a compelling value proposition and helping us anticipate and shape new market trends successfully," Chandrasekaran said. TCS, which is upbeat about the next 12 months, expects this period to throw up more opportunities. The performance in the Indian market was subdued due to lack of deal closures. The firm expects the situation to improve after two quarters when things get clearer following the elections.

The company signed nine large deals across verticals during the March quarter and saw a 2.6 per cent growth in volumes. "We see around 75 per cent conversion into employees from the offer letters we send," said Ajoy Mukherjee, executive vice-president and head of global human resources at TCS.

“In FY14, the utilisation rate excluding trainee employees was around 84 per cent, while utilisation including trainees was around 77.9 per cent. We hope to improve on the overall utilisation in FY15," Mukherjee said.

The company plans to announce a wage hike of 10 per cent for Indian employees, between 2 per cent and 4 per cent for those in developed countries and 4-6 per cent for those in developing countries. “The better performers will get better hikes up to 14 per cent and there will be 100 per cent disbursement of the variable pay,” Mukherjee said.

Deven Choksey, managing director of KR Choksey, said the drop in sequential performance was expected due to the extended winter in the US and the UK, which led to a drop in the number of billing days. “In terms of business growth, it has grown at a better rate than Nasscom’s projection for the industry, at around 17 per cent. The company has guided for 15 per cent growth in 2014-15, compared with Infosys’ 7-9 per cent guidance and the slower performance of other peers in this space. The stock is not going to be affected in the short term,” Choksey said.

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