TCS Q3 Results: Company Guides For Double-Digit Growth In FY22

Tata Consultancy Services Ltd.’s revenue rose for the second straight quarter as clients continued to spend on digital services during the pandemic and on deal wins. That has helped it guide for double-digit revenue growth in the next financial year.

Revenue of India’s largest software services exporter rose 4.7% over the preceding quarter to Rs 42,015 crore in the October-December period, according to an exchange filing. That compares with the Rs 41,231-crore consensus estimate of analysts tracked by Bloomberg.

Revenue in dollar terms, too, increased 5.1% to $5,700.6 million during the period.

“Growing demand for core transformation services and strong revenue conversion from earlier deals have driven a powerful momentum that helped us overcome seasonal headwinds and post one of our best performances in a December quarter,” TCS Chief Executive Officer Rajesh Gopinathan was quoted as saying in a statement. “We’re entering the new year on an optimistic note, our market position stronger than ever before, and our confidence reinforced by the continued strength in our order book and deal pipeline,” he said.

Other highlights (quarter-on-quarter)

• Net profit rose 3.2% to Rs 8,701 crore — compared with the Rs 8,594-crore estimated.
• Operating profit rose 6.36% to Rs 11,184 crore — against the Rs 10,465-crore forecast.
• Operating margin expanded to 26.6% from 26.2%. Analysts had pegged the Ebitda margin at 25.4%. Net margin stood at 20.7%. For the nine-month period EBIT margin stood at 25.5%.
• The board announced a third interim dividend of Rs 6 apiece.

Chief Financial Officer V Ramakrishnan said the margin growth despite a wage hike from Oct. 1, 2020, was the result of better utilisation and efficiency.

Gopinathan said deal momentum will ensure that the company will post a double-digit growth in the year ending March 2022. The year-on-year growth will be in double digits on a calendar year or financial year basis, he said, while refusing to comment on growth trajectory for FY21.

TCS’ third quarter performance means it needs to achieve 2.7% sequential revenue growth in revenues in the fourth quarter to exceed FY20 revenue in dollar terms, according to BloombergQuint’s estimates.

Technology companies were among the worst hit after the Covid-19 pandemic stalled trade and forced employees to work from work, raising costs. The firms even lost billings as they generate most of their business overseas. The sector, however, rebounded in the second quarter, aided by large deal wins and client spending on cloud computing, artificial intelligence and internet of things as businesses moved online.

That worked for TCS even in the quarter ended December as the company reported deal wins worth $6.8 billion. Among others, TCS in November had agreed to acquire the employees and select assets of Pramerica Systems from insurance giant Prudential Financial Inc. The same month it also acquired Deutsche Bank AG’s technology services business.

All the sectors, including banking, financial services and insurance; and manufacturing, saw revenue growth over the preceding three months.

The company’s BFSI segment has been doing well although it’s facing challenges in U.K.

Shares of TCS closed 2.97% higher before the results were announced, compared with a 1.48% gain in the benchmark Nifty 50 Index.