TCS says watching Brexit as first quarter beats estimates

Tata Consultancy Services Ltd (TCS), India’s largest software services firm, said it will watch out for any impact from Britain’s move to exit the European Union as the country’s top software services exporter reported a better-than-expected 10.7 percent rise in first-quarter profit.

Europe is the second-biggest market after the United States for India’s software services companies. United Kingdom accounts for 14.8 percent of TCS’ revenue, while the rest of Europe contributes 11.5 percent.

“Based on anything I’ve heard from any client, I don’t have any negative input at this point,” TCS Chief Executive N. Chandrasekaran told a news conference.

“Having said that, we need to watch how Brexit plays out, how companies react, especially financial institutions,” he said, adding the company was in touch with key customers. Chandrasekaran also said TCS’ deal pipeline looked “very good” and that the company was hopeful of pushing for some price increases in areas such as digital, consulting and automation.

Net profit up

On Thursday, TCS reported 9.9 percent rise in consolidated net profit to Rs 6,317 crore for the first quarter ended 30 June, 2016-17, helped by more outsourcing contract wins from overseas clients.

The company had posted net profit of Rs 5,747 crore in the April-June period of the 2015-16 fiscal, the Mumbai-based firm said in a BSE filing.

Analysts on average had expected a net profit of Rs 6,088 crore, according to data compiled by Thomson Reuters.

Dipen Shah, Senior VP & Head Private Client Group Research, Kotak Securities said, “TCS revenues are almost in line with our estimates, but margins have beaten our expectations. The results reflect a secular growth across verticals and geographies. With lower headwinds from Diligenta, Latam and Japan revenues, we do expect revenue growth rates to be better YoY. We maintain our positive bias on the stock. However, any delays / cancellations of projects due to Brexit will negatively impact the growth in FY17.”

The company’s consolidated revenue jumped 14.2 percent to Rs 29,305 crore for the first quarter of the current fiscal, as against Rs 25,668 crore in the year-ago period. The figures are as per Indian Accounting Standards (Ind AS).

Cloud, big data drives growth

Chandrasekaran said strong execution and accelerating customer adoption of cloud, big data and analytics has driven broad-based growth across key markets and industries.

“Our investments in platforms are gaining significant traction as customers look to boost business agility and enhance their time-to-market to gain a competitive edge,” he said.

TCS has now trained over 1.65 lakh employees in new digital technologies that are rooted in specific domains. Digital services accounted for 15.9 percent of the revenue in said quarter, he added.

TCS CFO, Rajesh Gopinathan said the company’s disciplined approach to operations has helped it counter strong headwinds in the form of annual salary hikes and promotions as well as global currency and market volatility through the quarter.

On a sequential basis, the company’s net profit fell marginally, while the revenue rose 3 percent. The company announced an total dividend of Rs 6.5 a share.

TCS’ operating margin stood at 25.1 percent. Its operating income at Rs 7,347 crore, was up 8.9 per cent y-o-y.

Tata Consultancy Services added 17,792 (gross) employees during the said quarter, taking its total headcount to 3.62 lakh as of June 30, 2016.

In tune with the firm broad markets sentiment, TCS shares ended 1.2 percent higher at Rs 2,520.30 on BSE.

With inputs from Agencies