TCS consolidated net up 36 per cent in Q1
Business Standard — July 17, 2007

Volume and pricing growth helped India's largest IT services provider, Tata Consultancy Services (TCS), to partly offset the effects of a wage hike and an appreciating rupee in the first quarter ended June 30, 2007(Q1FY08). The firm posted a consolidated net profit (Indian GAAP) of Rs1,203 crore - a 36.3-per cent increase over the same period last financial year.

Its consolidated revenue of Rs5,203 crore was a 25.2-per cent increase over the corresponding quarter's figure the previous year.

When compared to its growth over the last quarter's figures, though, the IT major saw a marginal rise of 0.8 per cent over the previous quarter's revenue of Rs5,162 crore and 0.7 per cent in the previous quarter's net profit of Rs1,195 crore.

"This quarter has validated the strength of our business model and our ability to respond to the external financial environment and drive growth under challenging circumstances. Despite factoring in wage hikes and an appreciating rupee, we have maintained profitability by great execution, demand creation and strong financial management," said S Ramadorai, CEO and MD of TCS.

The appreciating rupee, however, impacted the company's margins by 258 basis points. The operating margin (OPM) was down by 281 basis points to 25.49 per cent as against 28.3 per cent the previous quarter. The wage hike, too, impacted the first quarter margins by 208 basis points. TCS partly countered the effects with a productivity improvement of 213 basis points. Hedging too helped. As of June 30, TCS had about $2.5 billion outstanding in hedges. It posted hedging gains of Rs107 crore this quarter.

The management is confident of its growth prospects. It effected a pricing growth of 0.6 per cent this quarter, and is pursuing 20 deals of $50 million each. For contracts that are coming up for renewal, the management will increase its pricing between 3 and 5 per cent. For new clients, it will be 5 per cent upwards. S Mahalingam, chief financial officer, said: "Compared to a year ago, the margin position coming into this financial year remains stronger and we will continue to manage this aspect of our business throughout the year."

"In dollar terms, TCS revenues grew 8 per cent during the first quarter driven by volume increases with an upward pricing bias, and the banking and financial services (BFSI revenues grew 13 per cent in the quarter), telecom and life sciences verticals performing strongly. "Our focus on key accounts continues to yield positive results with significant movement of clients to higher revenue bands. TCS now has six customers with annual billings of over $100 million," said N Chandrasekaran, head, global sales and operations. "Our brand-building campaign based around the concept of certainty in IT services continues to increase awareness of our brand worldwide and position us as a leading IT service provider globally, helping us gain mindshare from our customers and potential employees," said Phiroz Vandrevala, head, global corporate affairs.

Meanwhile, TCS remains the largest private sector employer with around 95,000 employees on its rolls as of June 30. "To ensure a steady flow of recruits, we have hired a larger number of experienced professionals in Q1, which is traditionally a slow period for inducting freshers," said S Padmanabhan, global head of human resources. Despite this, TCS continues to have the lowest attrition rate at just 11.5 per cent in the industry. Its employee utilisation rates range between 78.2 per cent and 79.4 per cent. There was a gross addition of 8,706 employees of which 2,898 were trainees and 4,795 were experienced professionals in India and 1,013 employees in overseas subsidiaries and branches. The net addition was 5,512 employees.

Meanwhile, the board of directors of the company, which met today, declared an interim dividend of 300 per cent, that is, Rs3 per equity share of Re 1/- each.

Highlights for Quarter Ended June 30, 2007 (Indian GAAP)

• Q-o-Q: Rupee revenues up 0.8 per cent; dollar revenues up 8 per cent
• Q-on-Q: Rupee net profits up 0.7 per cent; dollar net profits up 8 per cent
• EPS at Rs12.29 in Q1
• 54 new clients added in Q1
• 8,706 employees joined the company in Q1
• Attrition at 11.5 per cent LTM (including BPO)
• Dividend of Rs3 per share announced
• TCS Financial Solutions - SBU for financial products - launched
• New GDC in Mexico launched