TCS Q1 PAT up 28.5% YoY; India business down 14.1% due to second wave

The first quarter FY22 number of Tata Consultancy Services (TCS), India’s largest IT services players, missed analyst expectations as India business pulled down revenue growth. Domestic revenues were down 14 per cent as the second wave of Covid-19 impacted business sentiment.

For Q1FY22, the net profit of the company at Rs 9,008 crore grew by 28.5 per cent year-on-year, but was down 2.5 per cent sequentially. Revenue for the quarter grew 18.5 per cent year-on-year at Rs 45,411, and was up 3.9 per cent sequentially. According to Bloomberg poll, analysts were estimating revenue of Rs 45,767.5 crore and net profit of Rs 9,391.9 crore for the quarter gone by.

In dollar terms, the company’s topline revenue growth was 2.5 per cent at $6.15 billion was a tad below expectation of the street, which has factored a growth of 3.5-4 per cent.

On the operational front, however, the company continued to see a robust growth. For the quarter TCS reported total contract value of $8.1 billion. The deal signing has been driven by growth across geographies and verticals.

Rajesh Gopinathan, CEO and MD, TCS said: “In a personally challenging quarter to many, TCS has managed to report a finely balanced quarter. While we have seen strong growth in core markets, we have seen challenges in emerging market like India. But if you look at our customer addition across bands has grown in this quarter. Rather customer addition has surpassed pre-Covid levels.”

The India business was impacted as the iON business bore the burnt of Covid-19 second wave, some of the projects in the public sector like the Passport Seva Kendra’s too were impacted.

“Tata Consultancy Services’ (TCS) results were below our estimates. The company is watchful of Covid situation and its impact on growth. We believe that the impact on India revenues will be reverted in coming quarters. Hence, we expect improving revenue trajectory and expect the company to achieve double digit revenue growth in FY22E. This coupled with healthy deal pipeline, and robust margins keep us positive on the stock from a longer term perspective. We would be revisiting our estimates and target price shortly,” said the first cut note from ICICI Direct Research.

The company reported growth across regions and verticals. Growth continued to be led by Life Sciences and Healthcare that grew 7.3 per cent sequentially. Retail and CPG also bounced back to double digit growth, growing at 4. Per cent QoQ. BFSI was up 3.1 per cent, manufacturing grew 4.8 per cent, technology & Services was up 5 per cent and Communications & Media at 1.7 per cent growth saw significantly improved performance.

In terms of geography, North America that grew by 4.4 per cent in constant surrency terms, UK was up 3.6 per cent, Continental Europe grew +1.5 per cent.

TCS also crossed the 500,000 milestone in total workforce. At a total headcount of 509,058, TCS reported attrition of 8.6 per cent (LTM basis). Though the attrition rate is the lowest among peers, it has gone up from last quarters 7.2 per cent. For the first quarter the company added a net of 20,409 associates.

“During the months of April and May, the second wave of pandemic has been quite demanding for the TCS Family. We continued to place a premium on associate health and wellbeing and have taken vaccination as a priority for all our associates, dependents and contract staff. In less than two months, over half a million associates and family members and over 70 percent of our associates have been vaccinated, and we are on track to vaccinate all TCSers and families by September,” said Milind Lakkad, Chief HR Officer.

TCS has a solid foundation for growth. TCS is reorganizing itself and changing its operating model to align with the requirements in the market. It has managed to control attrition and provided stability which is a good indicator for a stable organisation,” said D D Mishra, Senior Research Director, Gartner.