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TCS delivers a mixed bag

In a seasonally weak quarter, the company posted almost a 21% revenue growth at Rs 37,338 crore

By Our Special Correspondent in Mumbai

  • Published 11.01.19, 1:07 AM
  • Updated 11.01.19, 1:07 AM
TCS campus in Kochi: Analysts had expected TCS to report profits of Rs 7,900-8,400 crore.
TCS campus in Kochi: Analysts had expected TCS to report profits of Rs 7,900-8,400 crore. (Shutterstock)

Tata Consultancy Services (TCS) on Thursday reported a mixed set of numbers for the third quarter ended December 31, 2018, with profits largely meeting estimates even as margins took a knock because of cross-currency movements and the higher cost of doing business.

The country’s largest IT services firm reported a record net profit of Rs 8,105 crore, a growth of 24.1 per cent over Rs 6,531 crore in the corresponding period of the previous year.

Analysts had expected TCS to report profits of Rs 7,900-8,400 crore. In a seasonally weak quarter, the company posted almost a 21 per cent revenue growth at Rs 37,338 crore and a constant currency growth of 1.8 per cent sequentially, which was also in line with Street estimates.

In dollar terms, revenues came in at $5.25 billion compared with $4.79 billion in the corresponding period last year.

The only disappointment was on the margin front. Operating margins fell 90 basis points to 25.6 per cent from 26.5 per cent in the preceding quarter. This was not only lower than estimates but also below its targeted range of 26-28 per cent for the year. While this has been blamed on adverse cross-currency movements during the quarter and the higher cost of doing business, chief financial officer V. Ramakrishnan maintained the margins were strong despite various challenges.

“Despite headwinds from the rupee volatility against various currencies, and the higher cost of doing business in some major markets, our operating margins have been resilient. We remain focused on driving rigour in our operations, generating strong cash flows and steering profitability back to our preferred range, while continuing to invest strongly for future growth,” he observed.

Rajesh Gopinathan in Mumbai on Thursday.
Rajesh Gopinathan in Mumbai on Thursday. AP

Speaking to reporters here on Thursday, CEO Rajesh Gopinathan said the company was wrapping up 2018 with a strong revenue growth of 12.1 per cent (year-on-year) in the December quarter, which is the highest in 14 quarters, with continued growth acceleration in key verticals and across all geographies.

He added that during the period, TCS witnessed an expansion across all customer segments and added one more $100-million-plus client, taking their total number to 45.

Digital services continued their strong growth trajectory and now constitutes over 30 per cent of its revenues.

In terms of geography, North America continued to do well by growing 8.2 per cent over the same period last year. The UK and Europe also put up a good show.

In terms of verticals, the banking, financial services & insurance segment maintained its upward momentum and clocked a growth of 8.6 per cent over the same period last year. Retail, utilities and energy also did well.

On the road ahead given the slowdown concerns in the US, Gopinathan said TCS saw a strong deal momentum with the order pipeline building up steadily.

He however, added that macro-economic trends are external and hard to predict.

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