TCS beats the Street, continues bull run

Last Updated: Sat, Oct 20, 2012 04:56 hrs

Tata Consultancy Services (TCS) continued its bull run in a difficult market and breezed past Street estimates on earnings.

Strong growth from emerging as well as mature markets and an overall growth across all the major verticals drove the company's second-quarter numbers. It reported a volume growth of five per cent, which is better than peers Infosys' 3.8 per cent and HCL Technologies' 4.5 per cent, but lower than its own first-quarter volume of 5.3 per cent.

Operating margin, however, declined by 70 basis points this quarter to 26.7 per cent, from 27.4 per cent in the April-June quarter and 27 per cent a year ago, due to increased onsite hiring in Europe. However, TCS MD & CEO N Chandrasekaran said it was normal business to hire locally and the company was on course to deliver a 27 per cent margin-led growth.

TCS' net profit for the quarter ended September 2012 climbed 44 per cent from a year earlier to Rs 3,512 crore, driven by growth across geographies and businesses. A forex gain of Rs 92 crore compared to a loss of Rs 93 crore last quarter also helped boost profit.

Strong growth in verticals like manufacturing (9 per cent), retail (6 per cent), BFSI (4 per cent) and telecom (five per cent), pushed TCS revenues to Rs 15,620.8 crore, up 34.3 per cent year-on-year. On a sequential basis, profit after tax and net sales rose 3.5 per cent and 5 per cent, respectively.

"We have said in the past that we will deliver ahead of the Nasscom growth target (11-14 per cent) for the financial year. Looking into the future, I am quite positive. Customers are taking decisions, deals are getting ramped up and discretionary spends, too, are kicking in," said Chandrasekaran.

An analyst with a leading multinational brokerage firm said: "Compared to Infosys, TCS is a clear outperformer. Though the margin was expected to be under pressure, this is due to increase in onsite work."

"The five per cent volume growth is encouraging, especially coming on the back of a 5.3 per cent growth in the previous quarter," said Dipen Shah, head of private client group research, Kotak Securities.

TCS hiring numbers also reflected the company's growth pattern. TCS does not give guidance, but the company's hiring target in general has pointed the growth momentum it sees in the market.

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