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TCS meets estimates

The company posted a net profit of Rs 8,118 crore in the third quarter
TCS surprised on the margin front with operating margins rising 100 basis points over the preceding quarter to 25 per cent

Our Special Correspondent   |   Mumbai   |   Published 17.01.20, 06:42 PM

Net profits at Tata Consultancy Services (TCS) came in line with street estimates for the third quarter ended December 31, 2019, with India’s largest software services company benefiting from a weaker rupee.

TCS posted a net profit of Rs 8,118 crore in the third quarter compared with Rs 8,105 crore in the same period last year, a growth of 0.2 per cent. The third quarter is a seasonally weak period for the IT services sector as it is marked by holidays and furlougs in key markets.

TCS posted revenues of Rs 39,854 crore, which is a growth of 6.8 per cent over the same period last year and 0.3 per cent sequentially.

In dollar terms, the revenues at $5,586 million marked a jump of 6.4 per cent over the year-ago period. The topline was below the estimates of a few brokerages. Emkay had expected a sequential rise of 1.2 per cent over the preceding three months.

However, TCS surprised on the margin front with operating margins rising 100 basis points over the preceding quarter to 25 per cent.

“The sectoral trends of the first half of the year continued to play out in the third quarter. Our robust order book during the quarter reflects our ability to pitch innovative technology solutions for different stakeholders. This is also helping deepen and broaden our customer relationships, and make the business more resilient,” said Rajesh Gopinathan, chief executive officer and managing director, TCS.

Speaking to the press after the announcement of the results, Gopinathan said the margins expanded because of the currency impact and strong execution by TCS.

During the quarter, life sciences and healthcare put in a strong performance as it recorded a constant currency growth of 17.1 per cent over the same period last year.

However, financial services and retail posted lower growth rates of 5.3 per cent and 5.1 per cent, respectively, compared with the second quarter of this fiscal.

Manufacturing posted a constant currency rise of 9.2 per cent, higher than the 7.8 per cent growth in the July-September period.

In terms of geographies, North America showed a rise of 4.1 per cent and the UK, 7.5 per cent.

Gopinathan added that demand was strong across the board in Europe though the US and the UK were challenging for financial services.

At its board meeting on Friday, the directors recommended an interim dividend of Rs 5 per share.

“TCS is set to underperform Infosys on revenue growth in 2019-20 and possibly in 2020-21 as well based on current estimates. We would expect the stock to react negatively to these results,” analysts at Emkay said.

No NCLAT impact

TCS on Friday said it did not see any impact of the National Company Law Appellate Tribunal (NCLAT) ruling removing N. Chandrasekaran as its chairman.

“Absolutely not... the SC has granted a blanket stay and we don’t see any impact on the company from that,” Gopinathan said.

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