TCS reports stronger Q2 but will the momentum continue?

TCS Chairman Natarajan Chandrasekaran

TCS Chairman Natarajan Chandrasekaran

Under the Indian Accounting Standards (IAS), the global software major reported Rs 6,446 crore net profit for Q2, registering 8.4 sequential growth from Rs 5,945 crore last quarter but a 2.1 per cent annual decline from Rs 6,586 crore in the same period a year ago. Analysts had expected a profit of 62.54 billion rupees.

Net profit attributable to shareholders was 64.46 billion rupees ($990 million) in the three months to September 30, TCS said in a stock exchange filing.

In a first cut analysis prior to TCS's earnings call with investors, Emkay Global's analyst said, "We believe that the company has delivered strong growth and profitability performance despite sustained pricing pressure and weak INR realisations".

Revenue from digital services rose 5.9 percent in the September quarter over the previous quarter and 31 percent over the year-ago period to account for 19.7 percent of TCS's total sales.

The Mumbai-based company had posted net profit of Rs 6,586 crore in the July-September quarter of the last fiscal, the company said in a BSE filing. "People are looking at multiple technologies and how to leverage them", he said.

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TCS' operating margins expanded 1.7 percentage points sequentially to 25.1% in the quarter, aided by a decline the value of Indian rupee against the US dollar and cross-currency gains. Improvement on BFSI and growth in the continental European market are two positives.

India's top IT services firm Tata Consultancy Services Ltd (TCS) said it expected an uptick in the retail business segment in the coming quarters but remained cautious about the banking and financial services segments that form the bulk of its revenues.

Attrition went down further to 11.3 per cent. The US, its largest market saw growth of 1.4 per cent, as it saw continued softness in business from banking and retail customers. Strong, broad-based client metrics this quarter demonstrates our increasing success with newer customers.

TCS, part of salt-to-software conglomerate Tata Group, said it added 1 client in Dollars 100 million-plus category and six clients in the USD 50 million-plus category. "With the sectoral headwinds slowly abating, we expect steadier and stronger growth ahead", said N Ganapathy Subramanian, chief operating officer at TCS. Rajesh Gopinathan said that the digital services of the company grew more than 30% YoY.

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