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Revenues for India’s largest IT services provider- Tata Consultancy Services – continued its winning streak for the fourth straight quarter in Q1 FY22. The company’s consolidated revenues surged 3.9% q-o-q and 18.5% y-o-y to Rs. 45,411 crore.

Net profit stood at Rs 9,008 crore for the quarter, up 28.5% on the back of high demand for digital services during the Covid-19 pandemic.

On a sequential basis, the company reported 4.1% growth in constant currency topline in core markets and verticals in the reported quarter, while topline growth in rupee terms was at 3.9% much lower than market expectations.

The company’s board has approved an interim dividend of Rs. 7 per share which will be paid on August 5, 2021. The record date for the purpose is July 16, 2021.

Hits:

  1. Revenue grew by 3.9% q-o-q, 18.5% y-o-y.
  2. Net profit rose 28.5% over the previous quarter to Rs 9,008.
  3. All business verticals of the company grew during the June quarter, led by life sciences and healthcare (up 7.3% q-o-q and 25.4% y-o-y).
  4. TCS’s orders stood at $8.1 billion after growing by 17.3% in Q1 FY22.
  5. IT Services attrition rate (LTM) was reported at 8.6%, the lowest in the industry.
  6. The company’s board declared a dividend of Rs 7 per share.

Misses:

  1. Operating profit margin declined from 25% in the last quarter to 24% in Q1 FY22.
  2. Operating profit fell 1.2% to Rs 11,588 crore.
  3. Net profit fell short of estimates by 2.5% from the predicted Rs 9,397 crore.
  4. The Q1 revenue also missed the Rs 45,777 mark projected by analysts.
  5. India business contracted by 14.1% q-o-q as the second wave of Covid-19 impacted market growth.
  6. Total outstanding liability of the company now stands at Rs 43,651 crore.

Segment-wise performance

Life sciences and Healthcare: Growth of 7.3% over previous quarter

Manufacturing: Growth of 4.4% over the previous quarter.

Retail and consumer business: Growth of 5.8% over the previous quarter.

BFSI: Growth of 3.4% over the previous quarter.

Communication, media, and tech: Growth of 5.3% than the previous quarter.

Company statement 

TCS CEO and MD Rajan Gopinathan said that the company fulfilled its commitment to its clients. The company has just signed its largest SaaS deal for the TCS BaNCS Global Banking Platform. The company crossed the $6 billion milestone in revenue this quarter and ensured promotions and salary hikes to their employees amid the pandemic. The board says that salary hikes had a 170 bps impact on the company margin. The company says that it lost Rs 350 crore revenue in this quarter on account of a lethal second wave.

TCS in news

The company’s workforce crossed the 5,00,000 milestone in Q1 FY22.

The company signed deals worth more than $8.1 billion in Q1 FY22.

TCS will hire 40,000 freshers in FY22.

What this means for the investor

Although the quarterly results were below expectations, analysts expect share prices to rally in line with the topline and bottomline growth the company has experienced. The business expanded in North America but was offset by the Indian business that was impacted by the second wave of Covid-19. The company is likely to benefit from strong IT demand ahead. Brokerage firms expect the TCS stock to rally up to 16% after the first quarter results. Despite the shrink in margins, research firms are confident that the company will strengthen its position and lead transformative projects.

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