TCS profit beats estimates, up 7.5%

by Ashutosh Bharadwaj, Bloomberg UTV    Apr 21, 2010

Tata Consultancy Services (TCS), the largest IT exporter, today reported a better-than-expected (7.4 percent) increase in net profit at Rs 1,931 crore for the fourth quarter ended March 31, 2010 when compared with Rs 1,797 crore reported for the third quarter ended December 31, 2009.

Revenue was up 1.1 percent at Rs 7,736 crore when compared with Rs 7,650 crore in Q3FY10.

Tata Consultancy joins second-ranked Infosys Technologies in signalling demand for services as customers in US and Europe resume spending. Orders are set to rise at Indian technology vendors after Oracle forecast the fastest growth in new software licenses since the onset of the global recession, according to Forrester Research.

CEO N Chandrasekaran said: "Our ability to react to growth opportunities and execute efficiently has helped TCS deliver a superior performance for the fourth successive quarter. Our volumes have grown and our margins are at near historic highs."

Ajoy Mukherjee, vice president, global human resources, said: "In FY10, we have been through an entire business cycle where controlled hiring in the first two quarters gave way to rapid recruitment in the last two quarters. We have made 20,000 campus offers for FY11. Our initiatives to provide a holistic professional career for our employees has helped keep attrition rates stable."

Other Numbers
Operating profit up 1.8 percent at Rs 2,128cr vs Rs 2,088cr
Operating profit margin at 27.51 percent from 27.30 percent, up 21bps
Other income at Rs 164cr from RS 56.9cr
EPS at Rs 9.87 from Rs 9.18

Factors At Play
Able to maintain margin despite currency appreciation
Cost rationalisation kept cost of revenue lower
Selling & admin cost declined as percent of revenue
Other income up 186 percent
Effective tax rate reduced to 14.31 percent

Operating Matrix
Revenue from North America up 54 percent from 52.5 percent
Revenue from Europe declined to 15.2 percent from 16 percent
Revenue from BFSI vertical declined to 44.4% from 45%
Revenue from telecom, retail and manufacturing vertical remain unchanged
Top 10 clients contributed 30.2% of revenue from 29.9% Q/Q
Added 39 new clients during the quarter
Revenue from repeat biz at 95.7% from 96.5%
Gross addition of 14,640 employee, net addition of 10,110
Attrition rate at 11.8% including BPO
Utilisation rate, excluding trainees, at 81.8%
Employee cost 44.12% of revenue from 44.06%(Q/Q)

Updated at 1200 hrs: Tata Consultancy Services, the largest IT exporter, is set to report a 2% increase in net profit at Rs 1,835 crore for the fourth quarter ended March 31, 2010 when compared with the previous quarter profit of Rs 1,797 crore.

Revenue is expected to be up marginally (1.6%) at Rs 7,776 crore when compared with Rs 7,650 crore in Q3FY10. Operating profit is seen up 1.8% at Rs 2,312 crore.

TCS will announce the fourth quarter results on Monday, April 19….

Bloomberg UTV Estimate (AS PER US GAAP) QoQ
Profit seen up 2.1% at Rs 1835 cr vs Rs 1797 cr
Revenue seen up 1.6% at Rs 7776 cr vs Rs 7650 cr
Operating profit seen up 1.8% at RS 2312 cr vs Rs 2271 cr

Factors At Play
Volume growth seen at 6% QoQ
Revenue growth of 3.5-4% QoQ in USD terms
GBP and euro depreciation against USD of 5-7% in Q4FY10
Pound, euro depreciation against dollar could affect revenue growth
Revenue growth due to currency fluctuations may affect revenue growth by 1-1.5%
Currency factor could affect margins by 100-120 basis points
Margin headwinds from an appreciating currency
Relatively large exposure of TCS to the BFSI vertical
Stronger recovery in BFSI has been key tailwind for TCS
Highest exposure to European geography among large vendors
Relatively poorer revenue growth in European geography
Net increase of nearly 2,500 delivery employees
Forex losses seen at Rs 30cr
Added $380mn of hedges in Q3FY10 to cover dollar exposure

What to Watch Out For

Expect positive commentary on environment
Hiring guidance of 30K+ for FY11
Management’s comfort range of revenue growth in FY11 is 15%