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TCS starts earnings season with strongest Q3 growth in nine years

TCS' quarterly net profit rose 7 per cent from the year-ago period

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While COVID-19 hit the global economy hard, it seems to have given a shot in the arm for software exporters, as clients sped up technology-adoption amid the disruption caused by the pandemic. Tata Consultancy Services (TCS), which has seen several large-deal wins in the last few months, is one firm that has seen visible gains from this turbulent period, and is now confident of returning to double-digit growth momentum in the year ahead.

The October-December quarter is a traditionally weak quarter for IT firms, given the holiday season in its key geographies of Europe and America. Still, TCS, India’s largest software services firm, said growth this time around was the strongest in Q3 in nine years.

The company’s quarterly net profit rose 7 per cent from a year ago to Rs 8,701 crore from Rs 8,118 crore. Its revenue in the three-month period gained 5.4 per cent year-on-year to Rs 42,015 crore from Rs 39,854 crore.

“What the pandemic has done is accelerated technology adoption agenda across a wide spectrum of our client universe,” says Rajesh Gopinathan, MD and CEO of TCS.

“Many of the technologies, whether you call them digital or cloud, these have exited with us for many years now. They have been tested, they have been experimented with, they were proven. They just didn’t have the right flip from a business case perspective to switch over into a large scale adoption. The business continuity benefits, the resiliency, security benefits of these cloud platforms have become much more valuable in the current pandemic situation, which is resulting in large scale adoption of it,” he explains.

TCS has seen growth across key verticals and geographies in the third quarter. For instance, the BFSI (banking, financial services and insurance) vertical, which is the largest for TCS, saw revenues grow 2 per cent sequentially, manufacturing revenue was up 7 per cent, life sciences and healthcare saw 5 per cent growth, communications and media were up 5.5 per cent, while retail and CPG (consumer packaged goods) grew 3 per cent.

Among geographies, North America revenue was up 3 per cent sequentially, UK was up 4.5 per cent, Continental Europe grew 2.5 per cent and India revenue shot up 18 per cent. Other markets, including Asia Pacific, Latin America and the Middle East and Africa also grew.

Gopinathan said that deal flow across markets and verticals was strong and that perhaps gives him the confidence on the year ahead.

“Our success in going through this period and our investments and our re-focus on many of the new areas of technology and our organic investments in building capabilities, talent, partnerships, ecosystems are positioning us very strongly in a differentiated way across markets, to the extent that we are now confident about the year ahead. We are very confident that we should be able to get back to our aspirational double-digit growth trajectory both for the calendar year as well as the financial year ahead,” he said.

TCS is not the only one reaping the benefits of wide-scale technology adoption by companies. Recently, rival Accenture had reported strong earnings for what is its first quarter of the FY21. In the quarter ended November 30, Accenture reported 4 per cent rise in revenue at $11.8 billion, which was $200 million above its guided range, while operating income was up 7 per cent at $1.89 billion.

Analysts at HDFC Securities have forecast the wider IT sector will post its strongest third-quarter sequential growth of the past eight years and the stage is set for double-digit growth in the financial year 2022.

“Key drivers are accelerated cloud consumption and shift to the cloud (migration and modernisation of workloads) triggered by the pandemic, portfolio consolidation of vendors and applications by enterprise clients driven by cost optimisation and leading to multiple large re-badging deals,

and improving partner ecosystem/alliances and continuity in strong execution, despite operational displacement and re-alignment,” said the analysts.

Ahead of the earnings announcement, TCS shares closed up 3 per cent at Rs 3,120.35, while the benchmark Sensex surged 689 points or 1.4 per cent to 48,782.51 levels.

TCS’ homegrown rivals Infosys and Wipro will report their third-quarter earnings on January 13, followed by HCL Technologies on January 15.

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