TCS Q1 net zooms 28 pc; second wave-hit India a drag on overall biz

·4-min read

Mumbai, Jul 8 (PTI) The country's largest software firm TCS on Thursday reported a 28.5 per cent jump in June quarter net profit at Rs 9,008 crore, and called out the domestic business as a drag which restricted its overall growth because of the second wave of COVID-19.

The company, a cash cow for the over USD 100 billion Tata group, said the June quarter results were a tale of two contrasting trends of healthy growth in core markets like US and segments like banking, and the domestic business being a drag.

It, however, added that even in India, which has traditionally been an insignificant market for the firm, activity is showing some signs of improvement, and exuded confidence of meeting the overall double-digit revenue growth estimate for FY22 announced earlier.

The second wave dented revenues by as much as Rs 350 crore as businesses like passport issuances and tests-focused TCS iON remained impacted, its chief executive and managing director Rajesh Gopinathan told reporters.

'The results is the story of two markets. We have the core markets which are going very strong. And we have primarily the India market that has been significantly impacted,' he said, adding that nobody had anticipated such an impact from the India market, which faced a second wave during the quarter.

As compared to the performance in the preceding March quarter, revenues from India were down 14 per cent to Rs 2,085 crore. As a share of the overall revenue pie, India's contribution slipped by a percentage point to 4.6 per cent for the three months to June compared to the preceding March quarter.

The company's overall revenue stood at Rs 45,411 crore, up 18.5 per cent as compared to the year-ago period and 3.9 per cent higher than the March quarter.

It reported a total contract value of new deal signings at USD 8.1 billion which was widely spread across sectors and sizes. The momentum is also very good, which makes the firm confident of achieving the double-digit revenue growth trajectory, Gopinathan said, adding that the softness in India is a one-off.

Among other markets, Europe showed lower growth but Gopinathan maintained that was consolidation on the back of strong growth for four consecutive quarters.

Its core geography of North America and key industry vertical of banking, financial services and insurance (BFSI) grew at over double-digits on a year-on-year basis. F rom a profitability perspective, its operating margin came in at 25.5 per cent due to seasonal impact, but the company exuded confidence of taking it to the aspirational 26-28 per cent band soon. Its newly-inducted Chief Financial Officer Samir Seksaria explained that there was a 1.25 per cent impact on the number on a sequential basis, which included a hit of 1.75 per cent from annual wage hikes and promotions implemented from April, and a gain of 0.30 per cent from currency tailwinds.

From a spending perspective, discretionary spending by the company is seen returning by the end of the year but travel -- a major expense for the industry -- is seen some time away, the CFO said.

TCS added two clients which were classified as ones having the potential to deliver business of over USD 100 million during the quarter.

The company is vigilant about the situation vis-a-vis the spread of the coronavirus and newer variants in the UK and India, Gopinathan said, adding that 70 per cent of its staff has received at least one shot of the vaccine.

Chief Operating Officer N G Subramaniam said the hybrid work model will continue, but added that as the situation normalises, there will be a return of certain amount of work to offices.

On the human resources front, it added 20,409 people to take its overall headcount to 5.09 lakh at the end of the June quarter.

Its chief of HR, Milind Lakkad said its attrition rate of 8 per cent was an artificial number, impacted by the pandemic and will normalise as the situation improves, adding that this level will not impact the overall margins.

The company is the first major player to have reported its numbers for the June quarter, and its peers in the software industry and other sectors will be following up later.

The company's board has recommended a dividend of Rs 7 per share.

Reacting to the results, analysts at domestic brokerage Reliance Securities said the revenue underperformance was a one-off and welcomed the significant deal wins.

It added that TCS is set to be a key beneficiary of uptick in technology spends over the medium term.

The company scrip closed 0.56 per cent down at Rs 3,257.10 apiece on the BSE before the announcement of the results late in the evening, as against a correction of 0.92 per cent on the benchmark. PTI AA ABM ABM

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