TCS beats street with 73% jump in net,sounds upbeat about FY17

Mumbai

The nation’s largest IT exporter TCS today reported a higher-than-expected 72.7 per cent growth in the March quarter net profit at Rs 6,413 crore and guided towards a stronger 2016-17 fiscal, saying a majority of its worries are behind now.

The biggest Tata Group company had posted a post-tax profit of Rs 3,713 crore in the year-ago period, pulled down by a Rs 2,628-crore employee bonus during the period.

“We believe that all these (difficult) markets are better than the curve we had in the earlier quarter. I think FY 2016-17 should be a good year…we can tell you that it would be a strong year,” Managing Director and Chief Executive N Chandrasekaran told reporters here.

Industry body Nasscom expects software exports to grow at a slower clip of 10-12 per cent in FY 2016-17.

For FY 2015-16, its bottomline grew 22.4 per cent to 24,292 crore, while the topline jumped 14.8 per cent to Rs 1.08 trillion, crossing the trillion-rupee mark for the first time.

During the reporting quarter, TCS posted a 17.5 per cent rise in revenue to Rs 28,449 crore under the I-Gaap accounting, while on a sequential basis, it was up at a milder 4 per cent.

Chandrasekaran said all the regions where the company was facing headwinds such as Japan, Britain (because of its acquisition of Diligenta), and Latin America, and verticals like insurance, energy, utilities and telecom are either doing well or have hit the trough.

Even though its rivals have been flagging banking and finance sector as the potential areas to face headwinds, TCS’ revenues from the segment grew 3.2 per cent sequentially and Chandrasekaran is confident it will continue to do well.

The TCS numbers come days after its rival Infosys reported better-than-expected 16 per cent jump in the March quarter net and gave a very strong revenue growth guidance for the current fiscal on new client additions.

In the run-up to the good set of numbers that beat market view, the TCS counter closed with a negative bias at Rs 2,522.40 on the BSE, as against a 0.74 per cent surge in the benchmark.

Sarabjit Kour Nangra of Angel Broking termed the numbers as better than expected but attributed the same to other income, which she did not elaborate on. “The better-than- expected net is on back of higher than expected other income,” she said in a note.

With an ‘Accumulate’ call, it sees an over 13 per cent upside to the TCS counter in the mid to long term, she cited the company overcoming key headwinds from industries like energy and BFSIs have bottomed out and company given its client additions expects a strong FY 2016-17.

Angel Broking said in terms of geography, TCS fared better in constant currency terms with a 2.4 per cent growth in its largest market US, 1.8 per cent in Latin America, 3.6 per cent in continental Europe, 2.3 per cent in India, 1.1 per cent in Asia Pacific and a healthy 9.5 per cent growth in MEA (Middle East & Africa). But the company still struggled in Britain which was still down 0.4 per cent.

In terms of vertical, constant currency growth stood at 3.2 per cent in BSFIs, 2.1 per cent in retail & distribution, 3.9 per cent in manufacturing, 1.3 per cent in telecom, while energy and utilities clipped at 3 per cent, Nangra of Angel Broking said.

In the fourth quarter, TCS added 22,576 people to take its total workforce to over 3.53 lakh, but Chandrasekaran said the gross hiring in FY17 will be “much lower” than the 90,000 in FY16 on lowering attrition, better productivity and deepening automation drive.

The company’s attrition has comes down to 14.7 per cent at the end of the fiscal, better than its immediate rival Infosys, which had also reported an improvement, still at a higher 17 per cent.

TCS expects up to 32,000 freshers to join its benches from the 45,000 offers made at campuses across the country.

The company also declared its annual wage hikes, under which domestic employees will get an average 8 per cent hike while the better performing ones will get up to 12 per cent.

The company closed the quarter with a operating margin of 26.1 per cent as per the IFRS system and its Chief Financial Officer Rajesh Gopinathan said TCS will maintain it in the 26-28 per cent band even though there has been a 0.54 per cent correction in Q4.

TCS added three clients in the over USD 100 million revenue band, 8 in the over USD 50 million and 17 in the more than USD 10 million range during the quarter under review.

The upcoming digital business’ contribution swelled to 15.5 per cent of the overall revenue base, on a 52 per cent Y-o-Y growth, Chandrasekaran said.

Looking at the deal wins and its sizes, he expects this momentum to continue in FY17 as well. During the fiscal, it trained 1.20 lakh of its employees in over 400 new digital technologies.

TCS said the domestic business, which have been a drag for many years, also did well, growing by 2 per cent sequentially, and the revenues crossed the USD 1 billion for the first time.

Chandrasekaran declined to comment on the USD 940 million fine levied in a trade secret case in the US, saying the matter is sub judice, but said the company is in touch with clients on the issue and does not expect major impact.

The company board announced a dividend of Rs 27 per equity share of Re 1 face value.

PTI