Employees, blurred in a long exposure, walk through a rest area at the Tata Consultancy Services Ltd. (TCS) campus (Photographer: Dhiraj Singh/Bloomberg)

TCS Beats Estimates On Client Wins, Digital Services

Tata Consultancy Services Ltd.’s quarterly profit rose more than expected as India’s largest software services provider added clients and earned more from its digital services.

Net profit for the quarter ended September rose 8.4 percent over the previous three months to Rs 6,446 crore, TCS said in a stock exchange filing. The consensus of analysts tracked by Bloomberg had pegged the profit at Rs 6,284 crore. Revenue in rupee terms grew 3.2 percent to Rs 30,451 crore, in line with estimates. Dollar revenue rose to $4,739 million from $4,591 million in the previous quarter.

Operating margin expanded 170 basis points on a sequential basis to 25.1 percent. Operating profit rose 10.8 percent to Rs 7,660 crore.

The company’s revenue grew across all its industry verticals over the previous quarter. “Large deal wins this quarter, a good pipeline and bottoming out of the retail sector softness positions us well,” said Chief Executive Officer Rajesh Gopinathan.

Watch the TCS management detailing the company’s second quarter earnings.

TCS added one large client in the over $100 million category, and six new clients each in the $50 million, $20 million and $10 million bands.

The second quarter may bring some cheer for TCS shareholders as earnings had fallen short of analysts’ expectations in the last two quarters. Asia’s largest software services provider, along with other Indian outsourcers, has been facing multiple challenges ranging from declining client spends, increasing automation and protectionist measures such as visa curbs in the U.S., Singapore, Australia and New Zealand.

The banking and financial services vertical, where client spending was expected to remain soft, saw revenue rise 3.7 percent to Rs 12,229 crore quarter-on-quarter. Deals struck by TCS in the previous quarter were expected to materialise into sales growth this quarter, according to Bloomberg Intelligence. Retail and consumer business sales too picked up 2.3 percent to Rs 5,296 crore.

Revenue from digital services, including big data and cloud computing, increased 5.9 percent over the previous quarter and now contributes 19.7 percent to TCS’ topline. “Continued investments in digital designs and transformational capabilities are paying off, and it shows in the strong growth in our digital business,” said V Ramakrishnan, chief financial officer at TCS.

The outsourcer expects things to get better from here on. “With sectoral headwinds slowly abating, we expect steadier and stronger growth ahead,” said Chief Operating Officer N Ganpathy Subramaniam.

Shares of TCS had closed 1.9 percent higher, ahead of the results, while the benchmark BSE Sensex ended trade 1.1 percent up.

Watch BloombergQuint’s analysts of TCS second quarter earnings.

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