New Delhi: Tata Consultancy Services Ltd (TCS) kicked off the fiscal second-quarter earnings season by reporting its fastest sequential growth in revenue in more than three years.
Chief executive Rajesh Gopinathan exuded optimism that, save for any macroeconomic downside risk, the company will clock double-digit growth in revenue this fiscal.
“We have the numbers before us. I can say that we will have a double-digit growth this year,” said Gopinathan, who took over as CEO in February last year.
In constant currency terms, the company’s September quarter revenue rose 3.7% from the preceding three months. It grew 11.5% from the figure a year earlier. Currency fluctuations, however, took some sheen off the company’s growth as dollar revenue grew at a slower 3.2% to $5.21 billion in the quarter ended 30 September, compared with the preceding three months.
“On year-on-year basis, the growth improved to 11.5% in organic constant currency terms. This is the highest growth in 12 quarters,” HSBC analyst Yogesh Aggarwal said in a note to clients. “TCS’ Q2 is largely in line with our expectations”.
Net profit rose 3.4% to $1.1 billion from $1.08 billion in the preceding three months, while operating margin jumped 150 basis points to 26.5% from 25% in the April-June period, aided largely by a weaker rupee. One hundred basis points make up one percentage point.
A Bloomberg survey of 23 analysts had estimated a profit of ₹ 7,925.4 crore ($1.07 billion) on net sales of ₹ 36,470.4 crore ($4.92 billion).
TCS continued to bag large deals as it won $4.9 billion worth of deals in the September quarter. In the first quarter, the company won contracts worth $4.9 billion.
Clients spending more on TCS’s digital technology solution offerings helped increase its share of digital business, which surged 60% year-on-year (y-o-y)and accounted for $1.47 billion of total revenue in the September quarter.
The Mumbai-based company’s impressive performance in the July-September period came on the back of a strong 4.1% constant currency revenue growth in the first quarter. Encouragingly for its investors, the September quarter was the third straight double-digit increase in revenue for TCS. The company posted a 11.7% y-o-y dollar revenue growth in the January-March period, followed by a 10% y-o-y growth in both April-June and July-September quarters.
For the first time in three years, India’s largest software services provider is poised to outpace Nasscom’s industry growth projection of 7-9% in constant currency terms.
The US, which accounted for 51.1% of TCS’ Q2 revenue, and financial services, which constituted 31.2% of overall business, grew 8.1% and 6.1% y-o-y, respectively.
TCS ended the previous fiscal year with an 8.6% rise in revenue to $19.09 billion and a 24.8% operating margin, faster than the 6.2% in 2016-17, but its profitability was 90 basis points lower than the previous year’s 25.7%.
On Thursday, shares of TCS fell 3.1% to ₹ 1,979.75 on BSE, tracking a 2.19% drop in the benchmark Sensex to 34,001.15 points. The results were announced after market hours.