A strong momentum in the banking, financial services and insurance vertical (BFSI)—the company's biggest revenue stream—,growing adoption of digital technologies by clients, and a falling rupee helped Tata Consultancy Services (TCS) post an expectation beating 23.5 per cent year-on-year (six per cent quarter-on-quarter) growth in net profit in the first quarter.
Net profit for the country's largest software services exporter stood at Rs 7,340 crore in the April-June quarter, versus Rs 5,945 crore a year ago.
Analysts on average had expected TCS to report a net profit of Rs 6,983 crore, according to Thomson Reuters data.
Revenue for the quarter stood at Rs 34,261 crore, up 16 per cent from a year ago (seven per cent sequentially).
TCS is the first of the IT services companies to report earnings for the quarter and will set the tone for the rest of the sector.
At the end of the fourth quarter, Rajesh Gopinathan, the company's MD and CEO, had been upbeat about a turnaround in the BFSI vertical that has seen a good pickup in the June quarter.
In the first quarter, BFSI revenues were up 4.1 per cent from a year ago, and the company feels the growth momentum is now sustainable in the medium-term.
“Some of our most forward thinking customers have increased significantly their investments in new projects. The growth that we are seeing is very broad-based, which hopefully sets us up for a lot of confidence in terms of where it is going,” said Gopinathan.
Another area TCS is seeing strong traction is in digital, where revenues grew 45 per cent YoY in the first quarter and now account for 25 per cent of the company's revenues.
“On the digital front, growth has been very holistic. Lot of our digital offerings are giving traction. We have won deals of significance in each one of those offerings, whether it is TCS interactive, or IoT or blockchain, we have been able to win significant deals in the quarter and it is a business that is nicely set up,” said N. Ganapathy Subramaniam, chief operating officer.
Another shift that the company is witnessing this year is the increasing momentum in the North American market, where growth had been slow in the last financial year.
Overall, in constant currency terms, TCS' revenue grew at 9.3 per cent from a year ago and the company aims to get it back to double digits.
“We are focused on getting back solidly to double digit growth trajectory. In constant currency terms, this quarter we had 9.3 per cent and we hope to sustain that momentum,” said Gopinathan.
On the human resources front, TCS added 5,877 employees in the quarter, taking its total headcount to 4,00,875 employees, while its IT services attrition rate declined 0.1 per cent to 10.9 per cent.
Ahead of its quarterly earnings announcement, TCS shares ended 0.6 per cent lower at Rs 1,877 on the BSE.