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Technology

TCS logs revenue and profit gains on wave of financial sector orders

Indian IT earnings season kicks off with strong results expected from peers

Tata Consultancy Services' strong earnings are seen as a bellwether for other big providers of information technology services in India. (Source photos by AP and Getty Images)

MUMBAI -- Tata Consultancy Services, India's largest software services exporter, on Monday said profit edged up in the year ended March, helped by a strong order book from international clients, especially in banking, financial services and insurance.

The company reported a 0.26% rise in annual profit after taxes to 325.62 billion rupees ($4.3 billion), thanks to a strong gain in the January-March quarter. Full-year total revenue grew 3.72% to 1.67 trillion rupees.

TCS is the first Indian information technology company to announce its full-year results, and its performance is seen as a bellwether for the earnings of its peers in the sector, such as Infosys Technologies, Wipro and HCL Technologies.

"Our investments over the last decade in building newer capabilities, and in research and innovation, position us well for the multi-year technology services opportunity ahead," TCS Managing Director and CEO Rajesh Gopinathan said in a statement

TCS' revenue for the March quarter rose 9.4% on the year to 437.05 billion rupees. The company's net profit for the quarter was 92.46 billion rupees, up nearly 15% on the year. Its order book as of the March period stood at $9.2 billion.

Market watchers expect Indian IT companies to announce strong quarterly and annual earnings, given the accelerated adoption of digital technology by businesses around the world, partly in response to the coronavirus pandemic.

Expansion of recent deals, new orders and digital transformation investments are expected to drive revenue growth for IT companies for the most recent quarter, brokerage Prabhudas Lilladher said in a note. A favorable exchange rate is also expected to add 50 to 120 basis points to their dollar-denominated revenue growth, with TCS and Infosys leading the pack, it said.

Indian IT companies see big tech orders as a multiyear tailwind, with the transformation they had expected over the next three to five years completed in as little as two years, as companies move workers online. This comes after a lull during the peak of COVID-19 lockdowns worldwide last March. Amid this transformation, IT companies have been able to retain their price bargaining power.

The performance of India's software services export sector is reflected in stock prices, with the industry outperforming the broader market. TCS, for instance, has risen 6.5% in the past month and while shares in Infosys have climbed 3.3% on the Bombay Stock Exchange, compared with a more than 2% fall in the Sensex index during the period.

Nomura Global Market Research, however, sees pressure on the operating margins of IT companies due to wage hikes, increased hiring to meet higher demand, and seasonal weakness in high-margin services.

"We think EBIT margins have peaked in the third quarter of fiscal 2021 and are likely to trend lower," the firm said.

Nomura Global attributes this to supply-side constraints, higher wage costs, cost increases associated with larger deals and "reversal of some of the cost-benefit related to lower operating expenses, cutbacks in discretionary spending and lower travel," in fiscal 2022, it said in a note dated April 4. "As a result, we expect companies like Infosys and HCL Technologies to revert to their pre-COVID margin guidance of 22% to 24% and 20% to 21%, respectively."

Indian IT companies have used pay raises to retain talent. Earlier this month, TCS announced an salary increase that wills start on April 1, its second such announcement in six months. Infosys announced in October a decision to roll out promotions and pay raises, starting in January.

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