News Analysis

Key metrics steady for TCS

K Venkatasubramanian Updated on January 10, 2019

Traction continues in large verticals, client additions healthy

In a seasonally weak December quarter, TCS managed to deliver a steady set of numbers. On the revenue front, there was little to complain, though margins came in a tad lower, thanks to volatile dollar-rupee exchange rate movement.

But on key parameters, the company delivered broad-based growth across geographies and verticals, increased the count of large-sized clients significantly and continued the thrust on digital offerings during the third quarter.

All-round growth

During the December period, the company’s revenues grew by 0.7 per cent in dollar terms (1.8 per cent in constant currency) sequentially. The operating margin came in at 25.6 per cent, a bit lower than the previous quarter, though on an absolute basis, it is among the highest in the industry.

 

 

All large verticals — BFSI (banking financial services and insurance), retail, CPG and regional markets that together account for 66 per cent of overall revenues — grew for TCS during the December quarter. Other segments, such as communications, life-sciences and manufacturing too expanded at a steady pace.

The digital business grew at a scorching pace of 52.7 per cent year on year (y-o-y) and now accounts for 30.1 per cent of the overall revenues. Revenues from key geographies, including the Americas (North and South) and Europe, increased at a healthy clip. 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. In an environment where large deals are rare, the company has managed to add one customer each in the $100-million and $50-million buckets. In the $10-million category, it has added five customers. Attrition inched up a little but was still reasonable at 11.2 per cent.

Staying ahead

As TCS looks all set to deliver double-digit dollar revenue growth for FY19 — it has delivered 10-12 per cent y-o-y in each of the three quarters of FY19 — it continues to justify the premium valuations it gets vis-a-vis peers. This growth would be higher than the revenue increase that trade body Nasscom has projected for the industry (7-9 per cent) in FY19.

Also, TCS is likely to be the only player to deliver double-digit dollar revenue growth for FY19 among top-tier software services firms. Barring possibly HCL Technologies, others may significantly lag TCS on the growth front.

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