IT sector bellwether Tata Consultancy Services (TCS) on January 17 reported tepid growth numbers for the December quarter.
The country’s largest IT company’s net profit was at Rs 8,118 crore, up 0.2 percent year-on-year (YoY) against Rs 8,105 crore reported in the corresponding quarter of the previous financial year.
The numbers were below expectations, as a CNBC-TV18 poll had estimated the numbers to the tune of Rs 8,224 crore.
Here are 9 key takeaways from TCS Q3 scorecard:
Revenue misses expectations
Revenue in rupee terms grew by 2.3 percent QoQ (up 6.7 percent YoY) to Rs 39,854 crore for the quarter. Constant currency (CC) revenue grew 6.8 percent YoY. CC revenue growth slowed for the third consecutive quarter YoY.
Operational margins improved by 100 bps QoQ due to currency benefits and execution. Cash from operations is at an all-time high. Q3FY20 margins came at 25 percent against 24 percent in Q2FY20.
The company has declared a third interim dividend of Rs 5 per equity share. The record date for the third interim dividend is January 25, while the payment date is January 31.
Revenue growth was led by life sciences & healthcare (up 17.1 percent), communications & media (up 9.5 percent) and manufacturing (up 9.2 percent). However, BFSI (up 5.3 percent), retail & CPG (up 5.1 percent) and technology & services (up 3.3 percent) showed modest growth, the company said.
As per the company’s regulatory filing, market growth was led by Europe (up 15.9 percent) and MEA (up 10.8 percent). Growth in UK (up 7.5 percent), North America (4.1 percent) and Asia Pacific (5.7 percent) was decent. Indian market segment grew 6.4 percent, while Latin America grew 6.2 percent.
Consulting & services integration saw strong growth in Q3, led by next-gen enterprise transformation services, M&A, divestiture and supply chain as a service.
“In the digital transformation services segment, the MFDM™ framework which integrates automation, analytics and Al have been central to many core transformation deals,” TCS said, adding, “growth in Q3 was led by enterprise intelligent automation, cybersecurity, loT and enterprise application services.”
Moreover, cognitive business operations continued to see strong growth in managed hybrid cloud services. “TCS’ new operating models leveraging service reliability engineering, AIOps powered by ignio™ and Agile are seeing strong traction. The Q3 order book was the strongest in the last several quarters,” the company said.
Research and innovation
As on December 31, 2019, the company had applied for 5,006 patents, including 132 applied during the quarter, and was granted 1,211, TCS said.
The company added 22,390 employees, year to date. Following the unprecedented levels of hiring in the first half of FY20, headcount addition moderated in Q3.
The company continues to be the industry benchmark in talent retention, with the IT Services attrition rate at 12.2 percent. The headcount stood at 446,675 as of December 31, TCS said.
Walgreens Boots Alliance, a leading North American pharmacy retailer, selected TCS as a partner to accelerate the work on transforming its critical pharmacy operating system.
IAG Tech, part of International Airlines Group, extended its strategic technology partnership by selecting TCS to support existing data centre infrastructure and services.
A strategic partnership with Bayer to provide IT transformation services across the pharmaceuticals and consumer health business, as well as in the area of corporate functions and HR across the enterprise.
One of Australia’s leading banks is expanding its strategic partnership with TCS to drive service management transformation in its consumer banking, business banking, institutional banking businesses and corporate functions.
“We saw the sectoral trends of the first half of the year continue to play out in the third quarter. Our robust order book during the quarter reflects our ability to pitch innovative technology solutions to address the business needs of different stakeholders in the enterprise and participate in our customers’ enterprise-wide transformation initiatives. This is also helping deepen and broaden our customer relationships, and make the business more resilient,” Chief Executive Officer and Managing Director Rajesh Gopinathan said.
Chief Operating Officer & Executive Director N Ganapathy Subramaniam said: “In a seasonally weak quarter characterized by furloughs across multiple industry verticals, we focused on execution while continuing to invest for future growth. Having onboarded over 30,000 trainees in the first half of the year, we worked on driving up utilization in Q3 and had good outcomes. Our client metrics were also very good, with additions across most revenue buckets.”
“Our ability to expand our margins in a volatile environment speaks of the strength of our business model, strong execution focus and the higher quality revenues we are getting on account of our strong positioning in our customers’ growth and transformation spends,” Chief Financial Officer V Ramakrishnan said.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
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