TheNFAPost Podcast

Strong Revenue Growth and Margin Expansion Mark TCS Q2

  • Q2 Revenue +4.8% QoQ in CC, +4.7% in INR, +7.2% in USD
  • Growth led by BFSI (+6.2% QoQ) and Retail (+8.8% QoQ) 
  • Salary Increases to be Rolled Out, Effective October 1st 
  • Industry-leading Operating Margin at 26.2%*
  • Very Strong Deal Closures: Total Contract Value of $8.6 Bn 
  • Board Announces `16,000 crore buyback

Bengaluru, NFAPost: Buckling under global economic crisis and the effects of Covind-19 Pandemic, India’s largest IT firm TCS reported its net profit fall 7.05% to Rs 7,475 crore for the second quarter ending September 30 compared with Rs 8,042 crore in the same quarter last year.

But the IT behometh’s revenue for the quarter rose to Rs 40,135 crore from Rs 38,977 crore registering a YoY growth of 3%. The company claimed its cash conversion was strong as net cash from operations stood at Rs 10,618 crore, 125.9 % of net income. Consolidated revenue from operations for the quarter grew by 4.7% sequentially to Rs 40,135 crore.

According to analysts, the bottomline of the company was impacted by the provision of Rs 1,218 crore in the EPIC Systems Corporation legal case, but adjusted profit growth was strong at 20.3 percent to Rs 8,433 crore (excluding legal claim provisions) led by revenue growth and margin expansion.

Performance highlights

  • Revenue at `40,135 crore, +4.7% QoQ, +3% YoY
  • Constant Currency revenue growth: +4.8% QoQ, –3.2% YoY 
  • Net Income at `8,433 crore*, +20.3% QoQ, +4.9% YoY
  • Operating Margin expands 2.2% YoY to 26.2%*; Net Margin at 21%*
  • Strong Cash Conversion: Net Cash from Operations at `10,618 crore | 125.9% of Net Income*
  • Consolidated headcount: 453,540 | Net addition: 9,864 | Women in the workforce: 36.4% 
  • 352K+ employees trained in new technologies; 427K+ on Agile methods
  • Already a global benchmark, IT Services attrition rate hits an all-time low at 8.9% LTM
  • Interim Dividend per share: `12.00 | Record date 15/10/2020 | Payment date 03/11/2020
  • The Board has approved a proposal to buy back up to 5,33,33,333 equity shares of TCS, being 1.42% of the total paid up equity share capital, at `3,000 per equity share for an aggregate amount not exceeding `16,000 crore (excluding taxes and related expenses),  on proportionate basis under the tender offer route using the stock exchange mechanism, subject to approval of the members by means of a special resolution through a postal ballot.

Commenting on the Q2 performance, Chief Executive Officer and Managing Director Rajesh Gopinathan said driving accelerated business value realisation of our customers’ digital investments has resulted in broad-based revenue growth.

“The strong order book, a very robust deal pipeline, and continued market share gains give us confidence for the future,” said Chief Executive Officer and Managing Director Rajesh Gopinathan.

Chief Executive Officer and Managing Director Rajesh Gopinathan said what the company is witnessing right now is the start of the first phase of a multi-year technology transformation cycle.

“In the current phase, enterprises are building a cloud-based foundation that will serve as a resilient, secure and scalable digital core. In subsequent phases, we will see the native capabilities of these platforms being utilized to create innovative new business models and differentiated customer experiences,” said Chief Executive Officer and Managing Director Rajesh Gopinathan.

Investment on platform

Chief Executive Officer and Managing Director Rajesh Gopinathan said the copany’s investments in building deep expertise on these platforms, in research and innovation and in industry-specific solutions leveraging our contextual knowledge, position us very strongly to benefit fully from this secular demand driver.

While BFSI and Retail & CPG registered 6.2% and 8.8% growth, TCS witnessed its Life Sciences and Healthcare registered a growth of 6.9% led the growth this quarter. It is interesting to note that technology and services grew 3.1% along with 1.4% gwoth in manufacturing. But TCS communications & media vertical came down by 2.4%.

TCS further said all markets showed good sequential growth, with North America growing 3.6%, the UK up 3.8%, and Continental Europe up 6.1%, while emerging markets also grew well, with India growing 20%, MEA up 8%, Latin America up 5.5% and Asia Pacific up 2.9%.

Long-term resilience

TCS Chief Operating Officer & Executive Director N Ganapathy Subramaniam said the company’s all-round performance this quarter is a huge endorsement of the increased relevance of our services and solutions to its clients as they pivot from risk mitigation to long-term resilience powered by cloud, digital and simplification of working methods.

“Clients are partnering us to leverage our thought leadership in SBWS™, Vision 25 x 25™ and Location Independent Agile™ to build a resilient, adaptable and future-proof operating model,” said TCS Chief Operating Officer & Executive Director N Ganapathy Subramaniam.

TCS Chief Operating Officer & Executive Director N Ganapathy Subramaniam said accessibility and touchless are becoming important attributes for solution design, and TCS products and platforms continue to gain traction.

“Besides core systems transformation, our Quartz Blockchain Solution is the choice of a leading bank and a market infrastructure player for inter-bank lending, crypto assets and for enabling real-time settlements,” said TCS Chief Operating Officer & Executive Director N Ganapathy Subramaniam.

Market capitalisation

Much to the happiness of investors, TCS said its board has approved a share buyback proposal amounting up to Rs 16,000 crore. With this, TCS has become the first technology company to go for a buyback of its shares in FY21. The company last went for a share buyback in 2018 for the same amount.

According to the company announcement, TCS will buy 5,33,33,333 shares at Rs 3,000 per share, a premium of 9.59% from the last closing price. The actual size of the buyback as per share trading was 1.55% of the company’s total market capitalisation of Rs 10,27,177.79 crore.

Expressing happiness over the company’s performance, TCS Chief Executive Officier V Ramakrishnan said the company has always maintained that growth is the best margin lever, and that is very evident in its numbers this quarter.

“It is very gratifying to see every financial metric precisely where we would like it to be, with a stellar operating margin despite neutral currency, strong cash conversion, and lowest ever DSO. 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,” said TCS Chief Executive Officier V Ramakrishnan.

On the deal wins side, TCS said during the 2nd quarter the company witnessed strong performance with total contract value at $8.6 billion as against $6.9 billion in the first quarter.

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