News Analysis

Broad-based growth for TCS, yet again

K Venkatasubramanian BL Research Bureau | Updated on October 11, 2018 Published on October 11, 2018

TCS carried the momentum of its strong show in the first quarter into the September period numbers as well, with the company delivering ahead of market expectations on its financials as well as key operational parameters.

Growth was well-rounded across geographies and verticals, large-sized client additions were healthy and digital revenues growth was solid during the second quarter.

During the September period, the company’s revenues grew by 3.2 per cent in dollar terms(3.7 per cent in constant currency) sequentially. The operating margin was robust and expanded by 150 basis points sequentially to 26.5 per cent – among the highest in the industry.

All-round growth

All large verticals − BFSI(banking financial services and insurance), retail & CPG and regional markets − grew for TCS during the September quarter, by 3.4-7.3 per cent sequentially in constant currency terms.

The digital business increased at a scorching pace of 16.5 per cent sequentially and now accounts for 28.2 per cent of the overall revenues.

Revenues from key geographies, including the Americas(north and south) and Europe increased at a healthy pace. The latter region expanded at a faster pace than the overall company’s revenue rate.

The growth across verticals and geographies suggests that there has been broad-based client traction for TCS.

In an environment where large deals are rare, the company has managed to add four customers in the $100 million category and one in the $50 million bucket. In the $10 million and $20 million buckets, TCS has added 10 and seven customers, respectively.

Attrition was stable at a reasonable rate of 10.9 per cent.

Motoring along

TCS continues to justify the premium valuations – 26 times trailing 12-months earnings – that it commands in the markets vis-à-vis peers such as Infosys, Wipro and HCL Technologies that trade at 16-18 times. The company has made the most of the seasonally strong June and September quarters and looks all set to record double-digit revenue growth in dollar terms on a YoY basis in FY19.

This growth would be higher than the revenue growth that trade body Nasscom has projected for the industry (7-9 per cent) in FY19.

It remains to be seen if any other top-tier peer would match up to TCS’ growth figures.

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