TCS Q2 Results: Profit Up 6.6%, Margin Rebounds In Signs Of Recovery  

Net profit rose 6.66% quarter-on-quarter to Rs 7,475 crore on the back of revenue that grew 4.73% to Rs 40,135 crore.

Rajesh Gopinathan, chief executive officer of Tata Consultancy Services Ltd., gestures while speaking during a news conference. (Photographer: Dhiraj Singh/Bloomberg)
Rajesh Gopinathan, chief executive officer of Tata Consultancy Services Ltd., gestures while speaking during a news conference. (Photographer: Dhiraj Singh/Bloomberg)

Tata Consultancy Services Ltd.’s quarterly profit rose as the software services provider charted a recovery amid disruptions stemming from the Covid-19 pandemic.

Net profit of India’s largest software services exporter rose 6.6% sequentially to Rs 7,475 crore in the July-September period, according to an exchange filing. That compares with the Rs 7,946-crore consensus estimate of analysts tracked by Bloomberg.

  • Revenue rose 4.73% quarter-on-quarter to Rs 40,135 crore—higher than the estimated Rs 39,133 crore.
  • Dollar revenue rose 7.1% to $5,420 million.
  • Operating profit rose 16.2% to Rs 10,515 crore.
  • Margin expanded to 26.2% from 23.6% last quarter.

Profit was impacted as the company set aside Rs 1,218 crore as an exceptional item for damages paid in a U.S. litigation.

TCS Announces Rs 16,000-Crore Buyback

With the pandemic forcing employees to work from home, India’s IT companies saw their costs go up amid other operational challenges. The firms even lost billings as they generate most of their business overseas.

But smoothening of supply-side constraints, ramping-up execution of large deals and a continued recovery in its mainstay banking and financial services vertical helped TCS report higher revenue. A low base in the corresponding previous quarter, too, aided growth.

“We have always maintained that growth is the best margin lever, and that is very evident in our numbers this quarter,” Chief Financial Officer V Ramakrishnan was quoted as saying in a media statement. Ramakrishnan said every financial metric is “precisely” where the company would like it to be right now.

TCS’ revenue and margin outperformance came on the back of strong deal wins. The company reported deal wins of $8.6 billion during the quarter. This includes the $2.5 billion contract with U.K.-based Phoenix Group which was announced earlier but executed between July-September.

“The quarter’s deal pipeline has been characterised by a very broad-based pickup in deal signings for relatively mid-and small-sized deals as opposed to very large deals,” said Chief Executive Rajesh Gopinathan in the post-earnings press conference. “We are in the midst of a demand recovery when we look at our deal pipeline and our conversations with customers.”

This demand recovery has strong legs. This is not catch-up demand but rather sustained demand momentum.
Rajesh Gopinathan, CEO, TCS

TCS’ recovery underscores the increasingly optimistic sentiment for Indian IT among analysts and companies alike. While client spending on IT is estimated to fall 7.3% this year, the recovery is expected to be faster and smoother than the rest of the economy, according to Gartner.

“With the easing of lockdown restrictions, many enterprises will soon return to a higher level of revenue certainty allowing some cash flow restrictions to ease and CIOs to resume spending on IT again,” the industry tracker had said in its July update.

Besides, Covid-19 is expected to accelerate the growth of digital services as global and Indian clients ramp up their spending on cloud computing, artificial intelligence and internet of things.

The company has announced a Rs 16,000 crore buyback to reward shareholders—its third such exercise in the last four years, and the first by an Indian IT company this fiscal. It has also announced a second interim dividend of Rs 12 per share.

Resumption Of Salary Hikes

The company has said that with pandemic disruptions behind, it will again start rolling out pay hikes and hiring new employees.

“We are happy to announce that we will be rolling out salary increases, effective Oct. 1. We started onboarding freshers, and increased our recruitment globally in Q2, in anticipation of the growth trajectory we see ahead,” said Milind Lakkad, Global Head of Human Resources at TCS in the media statement.

TCS saw its attrition rate fall to 8.9%—an all-time low during the second quarter. “We continue to invest in our people and are doubling down on building newer capabilities to power the next leg of our growth and market share expansion,” Ramakrishnan said.

TCS To Resume Pay Hikes, Ramps Up Hiring As It Bounces Back From Covid-19 Disruption

Watch the management commentary on TCS Q2 results here.

Shares of TCS rose 1.4% ahead of the earnings announcement, compared with a 0.66% gain in the benchmark Nifty 50 Index.