India's largest software services exporter Tata Consultancy Services on Oct 12 reported 2 per cent year-on-year decline (8 per cent quarter-on-quarter rise) in second quarter with a net profit of Rs 6,446 crore.
Despite the YoY decline, earnings were still slightly ahead of analysts expectations, and the company highlighting good demand across industry verticals and growing share in digital. Analysts on average had expected TCS to report a net profit of Rs 6,306 crore, according to a Reuters poll.
The company's revenue for the July-September quarter rose 4 per cent from a year ago (up by 3.2 per cent sequentially) to Rs 30,541 crore.
TCS' operating margin was at 25.1 per cent in the second quarter, up 1.7 per cent over the first quarter.
“It has been a very satisfying performance this quarter, striking a good balance between pursuing revenue growth, particularly in digital opportunities, while tightening our execution to deliver greater efficiency. With the sectoral headwinds, slowly abating, we expect steadier and stronger growth ahead,” said N Ganapathy Subramaniam, chief operating officer of TCS.
Across IT services companies, there is a pressure to ramp up new technologies like digital, artificial intelligence and automation. TCS says, its digital revenue in the quarter rose 31 per cent from a year ago and contributed to near 20 per cent of total revenue.
“We continue to gain share in the fast growing digital spend of our customers,” said Rajesh Gopinathan, MD and CEO, adding the company had sharpened focus on individual components of digital services.
Ajoyendra Mukherjee, head of global HR at TCS said there had been no layoffs at TCS and it was reskilling to ensure every employee gets trained in digital.
TCS added 3,404 employees on a net basis in the second quarter, with the total headcount now touching 389,213 on a consolidated basis. Attrition rate in IT services was at 11.3 per cent.
“Large deal wins this quarter, a good pipeline, and bottoming out of the retail sector softness positions us well,” said Gopinathan.
The strong comeback by TCS, after disappointing in April-June should cheer investors.
Analysts in general expect IT services companies to do well in the second quarter. HDFC Securities analysts Apurva Prasad and Amit Chandra expect the sector to post strongest growth in the past five quarters, helped by cross-currency tailwinds.
TCS shares closed 2 per cent higher on the BSE at Rs 2,548.55 on Oct 12. The earnings were announced after markets closed.