TCS Q1 results: Profit rises, margin takes hit; here are 5 key takeaways

Tata Consultancy Services (TCS), the country's largest software exporter, has kicked-off earnings season on a strong note, posting better-than-expected numbers for the quarter ended June 30, 2019.

The Indian IT companies had a disappointing March quarter, thanks to currency volatility, supply-side challenges and slowdown in demand due to automation and the protectionist policies of foreign countries, such as the United States. Adding to it, weaker macro-environment, US-China trade tensions, and uncertainties around Brexit further dented the growth prospects of the IT sector, including TCS.

However, TCS's first-quarter result announcement and guidance for the fiscal year 2020-21 (FY21) may bring cheers for investors and market analysts.

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Here are 5 takeaways from TCS March quarter numbers:

Rise in top and bottom line growth

The IT bellwether has reported a 10.8 per cent year-on-year (YoY) growth in net profit at Rs 8,131 crore for the quarter ended June 30, 2019, as against Rs 7,340 crore in the same quarter last year. Revenue for the April-June quarter jumped 11.4 per cent YoY to Rs 38,172 crore from Rs 34,261 crore in the same period last year. Revenue growth in constant currency terms stood at 10.6 per cent on a yearly basis.

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While the numbers look attractive on a year-on-year basis, it does not look as good when compared with the previous quarter. TCS had posted a net profit at Rs 8,126 crore as against total revenue of Rs 38,010 crore in March quarter.

Contraction in operating margin

In the June quarter, TCS saw a contraction in operating margin, which is a key indicator of the financial performance of an IT company, due to wage hike, strong rupee against US dollar, high attrition and visa costs. TCS has reported operating profit margin at 24.2 per cent against 25 per cent in the same last quarter and 25.1 per cent in March quarter. The net margin stood at 21.3 per cent.

"Our margins in June quarter fully reflect the annual increments that we effected across the board in April," said V Ramakrishnan, Chief Financial Officer, TCS.

Strong hiring in Q1

TCS, India's biggest software exporter, said that it has added more than 12,000 jobs during the April-June quarter. As on June quarter, the consolidated headcount of the company stood at 4,36,641.

"Strong hiring in Q1 resulted in a net addition of 12,356 employees, the highest in the last five years," TCS said in the exchange filing. The company said it has issued joining letters to over 30,000 fresh graduates. Forty per cent of them have been on-boarded in Q1 and the rest are expected to join by Q2.

Broad-based growth across verticals

The Mumbai-headquartered firm said that revenue growth was broad-based across verticals, led by 18.1 per cent growth in life sciences and healthcare segment. The BFSI segment revenue rose by 11.24 per cent, followed by the retail and consumer business (7.9%), communications and media (8.4%), technology and services (7.8%), and manufacturing (+5.5%), among others.

Management sees steady start to new fiscal

The commentary from top bosses from TCS has been encouraging, which along with strong order book, bodes well for the IT sector. Rajesh Gopinathan, Chief Executive Officer and Managing Director, said: "We have had a steady start to the new fiscal year. We see customers continuing to spend on their growth and transformation initiatives, and that is showing in our strong order book and deal pipeline this quarter."

N Ganapathy Subramaniam, Chief Operating Officer & Executive Director, said: "Our platforms for the financial industry are doing well. I'm particularly pleased that our TCS BaNCS Global Securities Processing platform is the choice of two large global financial institutions during the quarter."

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