Tata Consultancy Services net profit rises 10.8 per cent to Rs 8,131 crore

Mumbai: India's biggest software services company, Tata Consultancy Services (TCS), on Tuesday kicked off the earnings season by reporting a 10.8 per cent rise in net profit, helped by a strong performance in its key banking, financial services and insurance segment.

The Mumbai-based company said its net profit for the quarter ended June 30 rose to Rs 8,131 crore from Rs 7,340 crore. The company reported an operating margin of 24.2 per cent. Its revenue from digital rose 42.1 per cent year-on-year, increasing its share to 32.2 per cent of the total revenues.

TCS posted 11.4 per cent rise in the revenue to Rs 38,172 crore during the quarter, which on a constant currency basis clipped at 10.6 per cent.

Bottomline has been hit a tad due to currency appreciation, TCS said without quantifying it, and termed currency depreciation as "intrinsic" to its business model and pointed out that future currency movements will determine if the company can get the operating profit margin in the aspirational band of 26-28 per cent.

Managing Director and Chief Executive Rajesh Gopinathan said in FY18 revenue growth had slipped to below 10 per cent, which recovered to double-digits in FY19 and said he is not looking at faster pace of topline growth.

"I am really not looking for acceleration, but looking for sustaining the double-digit growth level going forward," he told reporters announcing the numbers.

It can be recalled that the industry lobby Nasscom has stopped the practice of announcing yearly growth targets for the industry. The industry grew at 9 per cent in FY19. TCS is the first company to announce the June quarter earnings.

He said the deal momentum was good and TCS was able to close the quarter with $5 billion worth of new deals, which include four clients in the $100 million-plus bracket.

From a profitability perspective, operating margin came in at 24.2 per cent for the reporting quarter impacted by rupee gains and the higher wage bills.

Chief Financial Officer V Ramakrishnan, without offering a break-up, said “there was a 2.4 percentage point impact from currency appreciation and the impact of the annual wage hikes granted to its 4.36 lakh employees, while operating efficiencies cushioned the overall impact at 0.88 per-cent compared to the preceding quarter.

Whether it will be able to meet its aspiration of getting the margin into the 26-28 per cent bracket, he said currency can be the "spoiler".