TCS: Well-poised for a stronger year ahead

Ranjit Shinde, ET Bureau Jul 18, 2013, 08.18PM IST (The latest quarterly performance)

MUMBAI: The latest quarterly performance of TCS shows that the nation's largest IT exporter continues to be stronger and fitter at the moment relative to its close peer Infosys to take on the challenges of clouded outlook in global IT outsourcing demand. The company's dollar denominated revenue increased sequentially by 4.1% to $3,165 million in the June 2013 quarter, the strongest growth in three quarters. A sustained traction in the US and Europe as reflected from a double-digit sequential revenue growth in each of the regions boosted the overall performance. For Infosys, which reported quarterly numbers last week, revenue at $ 1,991 million grew relatively slower by 2.7%. A strong revenue growth of TCS was accompanied by better cost management, thus helping earnings before interest and tax ( EBIT) increase at a faster rate of 6.1% to $ 856 million compared with the revenue growth. The growth rate was the fastest in at least five quarters. This resulted in 53 basis points sequential expansion in operating margin at 27% for the quarter. Infosys reported flat operating margin of 23.5% for the quarter. A positive takeaway from the results of the large IT players so far is the sustained addition of clients amidst slower recovery in the Western economies. Both TCS and Infosys have retained the tempo. TCS added 10 large accounts whereas Infosys won seven new large deals during the quarter. TCS has reiterated that it would be able to beat the industry average growth estimate of 12-14% growth for FY14 as provided by industry agency Nasscom. This would support the valuation of the stock, which has been trading at closer to its all-time high level. The stock closed 1.2% lower at Rs 1,658.5 on Thursday on the NSE before the announcement of the results.