IT majors usher in earnings season with strong numbers

Mumbai: IT majors Tata Consultancy Services Ltd and Infosys beat analysts’ estimates, reporting higher profits for the fourth quarter of financial year 2018-19.

TCS, the country’s largest IT services company, reported a 17.7 per cent growth in consolidated net profit at Rs 8,126 crore for the March 2019 quarter as against a net profit of Rs 6,904 crore in the same period last year.

The company’s revenue grew 18.5 per cent in the quarter to Rs 38,010 crore from Rs 32,075 crore in the corresponding period last fiscal.

For the full year (2018-19), net profit was higher by 21.9 per cent at Rs 31,472 crore while revenue increased 19 per cent to Rs 1,46,463 crore.

“This is the strongest revenue growth that we have had in the last 15 quarters. Our order book is bigger than in the prior three quarters, and the deal pipeline is also robust. Despite macro uncertainties ahead, our strong exit positions us very well for the new fiscal,” said Rajesh Gopinathan, Chief Executive Officer and Managing Director of TCS.

India’s second largest IT firm, Infosys on Friday reported a 10.51 per cent year-on-year (YoY) rise in consolidated profit at Rs 4,078 crore for the March quarter, exceeding analysts’ estimates. The Bengaluru-based technology major had clocked a profit of Rs 3,690 crore in the same quarter a year ago.

Net sales for the quarter climbed 19.1 per cent to Rs 21,539 crore from Rs 18,083 crore in the same quarter last year.

Sales in dollar terms jumped 9.1 per cent YoY to $3.06 billion. In constant currency (CC) terms, growth stood at 11.7 per cent for the fourth quarter.

“We have completed the first year of our transformation journey with strong results on multiple dimensions, including revenue growth, performance of our digital portfolio, large deal wins, and client metrics. This is a reflection of our increased client relevance stemming from our focus on digital, positioning, and long standing client relationships”, said Salil Parekh, CEO and MD, Infosys.

While Infosys’s top 10 clients accounted for 19.70 per cent of top line, top 25 clients accounted for 35 per cent of March quarter revenue. The company added clients in $1 million (662 from 651), $10 million (222 from 214) and $50 million (60 from 59) segments on a sequential basis. The number of $100 million-plus clients also increased to 25 from 23 on a quarter-on-quarter (QoQ) basis.

“Infosys reported a mixed bag in 4QFY19, with margins coming in below expectations even as revenue came in-line and deal wins came in at >$ 1.5 billion. Attrition remains a bug-bear, however and this is an area that the IT major needs to focus given major digital talent shortage and attendant margin pressure due to wage cost inflation. The poor performance of Financial Services and Retail is something we would seek greater clarity on in light of robust order wins,” said Harit Shah, Senior Analyst, Reliance Securities.

The brokerage house currently has a Buy rating on Infosys with a target price of Rs 840.

Analysts believe the IT major is being conservative in terms of its revenue guidance for FY19, given that YoY CC growth was 11.7 per cent in 4QFY19, with robust order wins also reflecting underlying revenue strength.

TCS Digital revenue continued to accelerate with the vertical now contributing 31 per cent to revenues (vs 23.8 per cent in Q4FY18) with strong growth of 41.4 per cent YoY and 5.9 per cent sequentially in dollar terms. In terms of geography, growth was broad based with North America growing at 1.8 per cent QoQ, Latin America at 2.8 per cent, UK at 5.5 per cent and Continental Europe at 2.8 per cent QoQ in dollar terms. Among verticals, lifesciences & healthcare lead growth (4.2 per cent QoQ in $ terms) while BFSI, communication and manufacturing each grew by 2.8 per cent QoQ.