TCS net jumps 17.7% to Rs 8,162 crores despite lagging margins

For the first time, the two largest software exporters- TCS and Infosys–reported their earnings in the same day, in fact, within an hour of each other wherein the Bengaluru- headquartered rival reported a 10.5 per cent rise in net income at Rs 4,078 crore and guided towards 7.5-9.5 per cent growth in revenue for FY20.

While overall revenue grew 18.5 per cent to Rs 38,010 crore during the quarter, operating margins continued to get
printed below its inspirational levels of 26-28 per cent. Operating margins came in at 25.1 per cent for the
quarter, down 0.31 per cent over the year-ago period, yet the management reiterated its aspiration of clocking 26-28 per cent margins, stressing that the current numbers are a global best.

Chief executive and managing director Rajesh Gopinathan said he will “call out” in case he feels the numbers are not achievable. Margins will be resilient and there are string levers to expand them, chief operating officer N Ganapathy Subramaniam said.

Gopinathan said TCS has closed the quarter with a total contract value of USD 6.2 billion, and exuded confidence of being able to maintain the high number. “That’s sort of total contract value is one of the big things that gives us the confidence about the momentum that we see,” he said, adding unlike last year, where there were segments growing at a much slower pace of 2-3 per cent, there are no “laggards” which is a booster for the company.

The company is firing on all engines and will tread cautiously on the snow that it sees all around, Gopinathan
said, when quizzed about the guidance. It can be noted that industry lobby Nasscom has discontinued its practice of giving a guidance for the industry because of the disruptions that it is undergoing.

The new-age and upcoming digital business, one of the prime reasons of the uncertainty, is growing for the company, Gopinathan said, pointing out that it grew 50 per cent and constituted nearly 31 per cent of the overall revenue pie.

From a sectoral perspective, its mainstay of banking, financial services and insurance grew at near double- digits
during the quarter and Gopinathan said there is no sectoral weakness now. Revenue growth from North America, which contributes over half of the total income, surged to 9.9 per cent during the quarter. Interestingly, despite the many macro worries over factors like Brexit, England was a standout geography with 21.3 per cent growth.

Subramaniam said rather than worrying about factors like Brexit, TCS looks at how to best align with a clients’
strategic requirements which helps overcome any difficulties. HR head Ajoy Mukherjee, who is retiring soon after
spending 39 years with the company, said the company added 29,287 people taking the total strength to 4.24 lakh.

He said employees will start getting their annual increments starting this evening and hinted that the country
averages will range from 2-6 percent, and also announced a 100 per cent variable pay. The company has always been hiring locally and will continue to do so, especially in the face of policy setbacks like in the case of the US, he said.

On the discrimination suit filed by a few ex-staffers in the US, Gopinathan claimed TCS has won the jury trial but
decided to settle the case as a “tactical” move. Analysts at brokerage Anand Rathi said the fall in operating margins despite the currency depreciation points out to competitive intensity.

Their peers at BNP Paribas said the earnings “look relatively better owing margins disappointment at Infosys” and
management commentary continues to remain “impressive”. The TCS scrip shed 0.26 per cent to close at Rs
2,013.75 a piece on the BSE, as against gains of 0.41 per cent on the benchmark.