FY15 will be a better year for growth: TCS

Despite being the largest information technology services player in India, Tata Consultancy Services (TCS) posted a strong set of numbers for the quarter ending June that were ahead of Street estimates. TCS also said FY15 will be a better year in terms of top line growth and the deal pipeline remains strong.

Broad-based growth across key geographies and verticals, strong volume growth and healthy deal kitty enabled TCS post another robust quarter. 

According to International Financial Reporting Standards (IFRS), although TCS’ revenues (Rs 22,111 crore) came largely in-line with expectations, the net profit (Rs 5,058 crore) stood much higher than expected even as the company provided Rs 175 crore by way of additional depreciation due to change in accounting policy. Consensus Bloomberg estimates had pegged TCS’ revenues at Rs 22,002 crore and net profit at Rs 4,889 crore. 

TCS’ managing director N Chandrasekaran said: “Robust volumes and healthy growth across all industries and key markets helped TCS start the new financial year on a strong note as our broad-based business portfolio continues to deliver results. We have a strong demand pipeline in place and our customer-centric mindset, leadership in the ‘digital’ space and strong execution capabilities will help us to sustain our momentum.” 

Its closest listed peer, Infosys, had also managed to beat Street expectations, albeit partially with higher margins (thanks to cost cutting measures undertaken) and volume growth. However, weak pricing pulled down Infosys’ overall revenue growth. Infosys has also guided for a seven-nine per cent revenue growth in FY15, which is lower than the industry’s 13-15 per cent. 

TCS’ strong show is commendable given its large size and consistent financial performance over the past three years. Well-diversified revenue mix across geographies, industries and service lines is the secret to TCS’ success. Infosys, on the other hand, continues to post volatile performance partly due to sticky high attrition (up for the ninth quarter in a row to 19.5 per cent). 

Ankita Somani, IT analyst at MSFL research, says: “TCS’ dollar revenue growth has picked up and I was surprised by the growth in its India market. Though valuation-wise TCS is not as comfortable as Infosys, I am more bullish on TCS.”