Employees walk along a corridor as others gather in a rest area at the Tata Consultancy Services Ltd. campus (Photographer: Dhiraj Singh/Bloomberg)

Digital Deals Drive TCS’ Growth In Third Quarter

Tata Consultancy Services Ltd.’s quarterly profit met estimates as India's largest software outsourcer continued to increase its share of revenue from cloud computing, big data and digital services in a seasonally weak quarter.

TCS' profit in October-December rose 1.3 percent sequentially to Rs 6,531 crore, according to its stock exchange filing. That’s largely in line with the consensus of analyst estimates tracked by Bloomberg who'd pegged the profit at Rs 6,552 crore.

  • Revenue went up 1.2 percent over the previous quarter to Rs 30,904 crore, again in line with expectations.
  • Revenue in dollar terms increased 1 percent to $4,787 million.
  • Operating margin remained largely unchanged at 25.2 percent. TCS had earlier forecast margin to remain between 26 and 28 percent in 2018.
 Digital Deals Drive TCS’ Growth In Third Quarter

The third quarter is usually soft for information technology companies because of festive holidays and furloughs.

TCS renewed a $2.25 billion deal for five years with research firm Nielsen Holdings Plc which involves using digital technologies. Revenue from the digital services, which contribute 22.1 percent of its turnover, rose 14 percent sequentially. The Indian IT industry is now heavily investing in cloud and artificial intelligence-based services as it looks to revive growth, as key customers like banking and financial services firms are increasingly adopting automation.

“We signed our first $50 million plus deal in digital this quarter, crossing an important milestone in the mainstreaming of digital technologies,” chief executive Rajesh Gopinathan said in a media statement. TCS' investments in “research and innovation” to build intellectual property are giving them a “distinct edge”, he said.

The company won over 150 deals during the quarter. These included 22 in cloud services, 15 in cyber security and 10 deals around the deployment of Internet of Things.

“New deal ramp-ups, increasing traction in digital, robust demand pick-up in retail and continuing momentum in most of our industry verticals gave us strong volume growth in a seasonally weak quarter,” Chief Operating Officer Ganapathy Subramaniam said.

Revenue from the retail vertical, which had been under pressure for the last few quarters, increased 5.4 percent over the previous quarter. It was expected to do well due to the holiday season spending.

Sales from the key banking and finance sector, which contributes the most to TCS’ turnover, fell 2.1 percent sequentially. All other verticals grew. BFSI is a “couple” of quarters away from a meaningful recovery, Gopinathan said in a media conference. “It is patchy,” he added.

Other Highlights

  • TCS added three clients with over $50 million revenue potential and seven in the over $20 million band.
  • Attrition rate fell 20 basis points to 11.1 percent.
  • Geographically, revenue growth was highest in the Latin American region at 5 percent sequentially. Europe saw a 2.6 percent growth, while North America grew at 1.5 percent over the last quarter.
  • TCS announced an interim dividend of Rs 7 per share. “In the last nine months, we have distributed Rs 25,300 crore as cash returns to shareholders through a combination of buybacks and dividends, which is probably a industry first,” said Gopinathan in a media statement.

Ahead of the earnings, shares of TCS closed 0.67 percent lower at Rs 2,788.40 apiece compared to a 0.2 percent rise in the benchmark S&P BSE Sensex. The stock appreciated 10.9 percent in the third quarter.