TCS shines in June quarter

India's largest IT services exporter Tata Consultancy Services (TCS) topped market expectations, growing its net profits for the June quarter by 5.5 per cent to Rs 3,796 crore, or Rs 19.40 a share, over the previous quarter.  

Revenues grew 9.5 per cent to Rs 17,987 crore sequentially. In dollar terms, the company grew its topline 4.1 per cent to $3.16 billion.

Analysts were expecting TCS to outperform Infosys, which it comfortably did - TCS was seen growing its topline between 3 per cent and 4 per cent in dollar terms. Infosys, last week, surprised the Street by raking in revenues of $1.9 billion for the June quarter, a rise of 2.7 per cent sequentially.  

The TCS management also appeared more confident than Infosys. "We had another stellar quarter. Our pipeline is very healthy and there is good demand. We are looking forward to a good 2013/1014," Chief Executive Officer and Managing Director of TCS, N. Chandrasekaran said, adding that the company was seeing good momentum from the United States, Europe and the United Kingdom.  

Infosys' management, in contrast, said they would be "cautiously optimistic" about their prospects this year.

TCS's bottom line did benefit from the depreciating rupee. It was able to offset the impact of wage hikes doled out during the quarter. The firm said that attrition in IT services at the company had dropped to one of the lowest in its history - below 10 per cent, a reflection of the changing supply-demand scenario in the industry.  While hiring has slowed, the supply of engineering graduates has increased over the past few years.

The strong numbers from TCS delighted analysts from brokerage houses. "The volume growth of 6.1 per cent was better than expected. They are clearly going to be ahead of the other three top-tier companies. And TCS can easily post a yearly growth of more than 15 per cent for 2013/2014," analyst with Sharekhan Sanjeev Hota said.  

TCS declared its June quarter results after markets closed. However, the stock touched a 52-week high of Rs 1,695 in morning trade on Thursday before closing at Rs 1,660.15 on the BSE. The BSE Sensex ended the day at 20,128.41, up less than a percentage point.

The results from top tier companies thus far appear to point to a positive trend in the IT services market - the demand has held up despite a poor macroeconomic climate. On Wednesday, iGate, another IT company, reported that its sequential revenues grew 3 per cent to $283.3 million for the quarter. But then, the first half of the year is seasonally known to be the strong quarters for the industry.

It remains to be seen how the industry fares in the quarters ahead. Research firm Gartner has already issued a warning. In a report released on July 17, it said that the worldwide IT outsourcing market would touch $288 billion in 2013, a 2.8 per cent rise in U.S. dollars from 2012. Nearly all segments of the market may grow more slowly during 2013, it said.  "We continue to see overall market growth being constrained by near-term market factors, such as evolving IT outsourcing delivery models, economic, political and labor conditions, and service provider financial performance," Bryan Britz, research vice president at Gartner, said in a note.

Analysts would be keenly watching the momentum is discretionary spending, which remains weak for many companies, as well as developments in the United States' Immigration Bill, going ahead.