Strong deal wins mark TCS’ first quarter

India’s biggest software company Tata Consultancy Services (TCS) posted a 10.6% increase in its revenue for the quarter ended June 30. TCS’ sales for the quarter stood at ₹38,172 crore as compared to ₹34,261 crore in the year-ago period. Net profits rose 10.8% to ₹8,131 crore. The company also declared an interim dividend of ₹5 per share.

“We had a strong year and we are growing on that strong double-digit growth. We are confident of staying in the double-digit growth trajectory in the current year too,” Rajesh Gopinathan, CEO and managing director of TCS, said.

However, its operating margins fell to 24.2% from 25% a year ago. Gopinathan attributed the dip in margins to the increased salary costs that became effective in this quarter.

Analysts, however, were happy with the margins but pointed out that the revenue was below expectations. This was largely on account of lower performance in the banking, financial services, and insurance (BFSI) vertical and the delay in spends from customers in this space spooked analysts. Analysts are also concerned about costs going forward on account of the increased salaries and off-shore development costs, due to the increased visa restrictions on Indian software engineers going overseas.

However, given its robust order book and growth, TCS is adding more headcount. The company reported that it ended last year with a net addition of 12,356 employees for the quarter, the highest in the last five years. It has also issued joining letters to over 30,000 fresh graduates—40% have joined in the June quarter and the rest are expected to join by September.

In its wide basket of options to grow business, TCS’s quarter had more successful ones than laggards. Europe, the U.K. and India grew at over 15%, while the U.S., its largest market, grew 8%. Deals in BFSI and retail verticals were below expectations, while manufacturing and life sciences performed strongly. Digital incomes, which the firm still considers its non-linear trigger for growth, grew 42% year-on-year, though it already contributes 32% to the overall business.

N.G. Subramaniam, chief operating officer, said that the order wins in digital have begun reflecting the wide area of expertise of the company. TCS has won orders in managing core systems in financial institutions, in payments and also in the front end. “Though moving to hybrid cloud is the most common requirement, there is increased visibility in block chain business,” he said.

TCS is India’s second most valued listed company, next only to Reliance Industries. Shares of TCS have jumped 11.83% on a year-to-date basis against a 7% rise in the BSE Sensex.