TCS Q2 net profit jumps 14% on strong demand for IT services

By Ayushman Baruah
Revenue grew 15.5% in constant-currency terms from a year ago.

Tata Consultancy Services Ltd (TCS) reported a 14.1% increase in quarterly profit, in line with analysts’ estimates, as the pandemic continues to help accelerate digital transformation and a shift to cloud computing and remote work.

Net profit rose to 9,624 crore for the second quarter ended 30 September from 8,433 crore in the year earlier, in line with the consensus analysts’ estimate of 9,652.20 crore in a Bloomberg survey.

Revenue grew 15.5% in constant-currency terms from a year ago to 46,867 crore, driven by broad-based growth across markets. Revenue, however, missed the consensus estimate of 47,355.70 crore.

The pandemic has accelerated the adoption of digital technologies by clients, driving demand for software services companies such as TCS. Analysts believe demand will remain strong for the next few quarters, led by spending on cloud migration by large corporates.

Rajesh Gopinathan, whose term as managing director and chief executive was extended by five years on Friday, said the strong demand environment is an opportunity to position the company as the preferred growth and transformation partner.

“We are using the growth tailwind to invest in strengthening relevant capabilities and building out a comprehensive portfolio of offerings," he said.

The Mumbai-based company’s dollar revenue for the second quarter grew 16.8% from a year ago to $6.3 billion, boosted by new deal wins and acceleration in clients’ digital agenda. The total contract value (TCV) of deals in the September quarter stood at $7.6 billion, led by increased sales in North America to financial services, retail, and manufacturing clients.

Despite higher expenses, increased currency headwinds, and higher sub-contractor usage, TCS expanded its operating margin to 25.6% in the September quarter from 25.5% in the preceding three months.

“Strong growth and disciplined execution helped us overcome headwinds from currency and supply-side inflation and deliver expanded margins," said Samir Seksaria, chief financial officer, TCS.

All verticals showed double-digit year-on-year growth in constant currency. Growth was led by the manufacturing vertical (21.7%), followed by life sciences and healthcare (19%), retail and consumer packaged goods (18.4%), and banking, financial services and insurance (17%). In terms of markets, North America, which contributes more than half of the revenues, grew 17.4%, while the UK grew 15.6%, and Europe was up 13.5% on a year-on-year basis.

“TCS’s recovery post-pandemic is impressive. While the market conditions were challenging, the company managed to maintain steady growth. Their vision of taking a long-term view, using all the available resources and know-how, and working closely with clients has paid off," said D.D. Mishra, senior research director, Gartner.

On a trailing 12-month basis, the attrition rate increased to 11.9% from 8.6% in the June quarter, indicating strong demand for people in the industry. The high attrition levels are likely to continue for the next two-to-three quarters, said Milind Lakkad, chief human resources officer, TCS.

The company recorded a quarterly net addition of 19,690 employees in the three months ended 30 September, taking the total headcount to 528,748. With 43,000 freshers joining in the first half of this year, the highest ever on-boarded in the first six months, TCS already crossed the projected target of hiring. It is expected to hire an additional 35,000 in H2 FY22. The reason for the increase in hiring numbers is a mix of high demand and attrition, Lakkad said.

Shares of TCS rose 1.1% to 3,935.30 on BSE. The earnings were announced after the end of trading in Mumbai.


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