ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Companies

Tata Consultancy first-quarter profit beats expectations

Recovery in demand from financial services clients also boosts earnings

MUMBAI (NewsRise) -- Tata Consultancy Services, India's largest software exporter, reported a better-than-expected 24% jump in first-quarter net profit, aided by a recovery in demand from its financial services clients and a string of large outsourcing deals.

The Tata Group flagship said consolidated net profit for the quarter ended in June stood at 73.40 billion rupees ($1.1 billion), compared with 59.45 billion rupees a year earlier. Revenue grew 16% to 342.61 billion rupees.

Analysts were expecting the company to report a net income of 69.83 billion rupees, according to a Reuters poll.

"We are starting the new fiscal year on a strong note, with the growth engine firing on all cylinders," Chief Executive Rajesh Gopinathan said in a statement. The banking and financial services "recovered very nicely" this quarter, while other sectors "maintained their momentum."

Banking and financial services that accounted for a third of TCS' total revenue grew 4.1% in the quarter. The sector had been sagging as most banks in the U.S. were wary of outsourcing, while regulatory changes that raised hopes of more outsourcing deals remained elusive.

"We are enthused by the demand that we see in banking and financial services. The medium-term outlook looks positive," Gopinathan told reporters at a news conference in Mumbai.

The recovery in financial services industry pushed TCS' revenue growth in North America to its best in 12 quarters.

The Mumbai-based company's performance in the past few quarters has been buoyed by contracts worth billions of dollars it had won since the end of last year. Last month, TCS doubled an outsourcing partnership with the U.K. financial services firm M&G Prudential to more than $1.4 billion after signing an initial deal in January.

That also prompted the company to predict strong revenue growth after several years of muted expansion. CEO Gopinathan reiterated the company's confidence in driving revenue in constant currency in double-digits this fiscal year.

TCS' performance contrasts with the slow growth pace of the industry that struggled to cope with a shift to new technologies. The industry expects 7% to 9% dollar-revenue growth for this fiscal year.

India's outsourcing companies earn a bulk of their revenue from rudimentary services such as maintaining the clients' software infrastructure and running back-office centers for large multinational companies. The advent of new technologies such as cloud computing and artificial intelligence has squeezed the investments in such low-margin, labor-intensive outsourcing services.

Digital revenue, which accounts for a fourth of TCS's overall revenue, grew 45% in the quarter.

The company's operating margins declined to 25% from 25.4% in the previous quarter as visa costs and wage increases offset the benefits of a sustained fall in the Indian rupee against the U.S. dollar. A weaker rupee makes Indian outsourcing companies more competitive and boosts the value of their revenue earned in dollars.

Second-ranked Infosys is set to report its first quarter results on Friday.

Ahead of the results, TCS shares lost 0.6% in Mumbai trading, while the benchmark S&P BSE Sensex closed 0.9% higher.

--Dhanya Ann Thoppil

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends January 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more