Tata Consultancy Services’ (TCS) ability to keep soaring, amidst all the ruins around it, has continuously surprised analysts and the June quarter proved no different. The fact that the IT major was able to grow uniformly across verticals is proof of its all round vision and performance.
The life sciences & healthcare and retail & distribution turned out to be the major growth drivers for the firm with revenues moving north by 12.3% and 8.8% quarter on quarter, respectively. The firm?s meatiest vertical, the BFSI segment, grew 2.9% QoQ and it appeared that IT spending in the BFSI sector was picking up faster than expected in the US. Telecom revenues rose 7.5% sequentially, much against expectations. This kind of 360 degree growth is rarely visible in other Indian IT companies and that?s what is keeping TCS way ahead.
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Its India business may have been the only disappointing aspect, falling 4.6% sequentially while other markets like US and Europe grew substantially. As a result, the company?s revenue grew by 16% year-on-year, above industry growth rates. The EBIT margins stood at 26.9%, a very healthy statistic to boast of. Infosys on the other hand had flat margins of 23.5%. TCS won a couple of $100 million plus clients during the quarter and that?s a good addition to have as well.
Compared to the muted commentary by Infosys whose CEO SD Shibulal described his outlook as ?cautiously optimistic?, TCS was far more bullish. TCS CEO N Chandrasekaran said it was another solid quarter, driven by the highest volume growth in the past seven quarters.
The TCS management expected the 2013 calendar year to be better than last year in terms of IT spending. A healthy pipeline, broad based deal signings, initial signs of upturn in discretionary spending etc have lent confidence to the company in estimating FY14 to be better than FY13, said Angel Broking in its assessment. With regard to service lines, TCS?s growth during the quarter was led by consulting which registered a 17.5% QoQ rise. Application development and maintenance (ADM) grew 3.9%.
TCS signed 10 large deals in the quarter?two each in banking and manufacturing verticals. Infosys managed seven such deals during the period. According to IT analyst Ankita Somani, TCS?s current deal pipeline is presenting opportunities for a robust growth in both run-the-business (RTB) and discretionary activities.
Post the TCS results, brokerages turned extremely bullish about the firm. CLSA said the results will further boost the sector-wide sentiment which has already been on an upward curve. Citi believed that strong execution will continue in the medium term, while rich valuations can be sustained. JP Morgan said that the company?s valuation looked a tad punchy in the near term, but saw that as a core holding for strategic portfolios as gains from leadership compound over the near term. Religare paid it the best compliment. ?TCS remains the best execution play in the large cap IT space. Industry leading growth and superior execution would continue to drive TCS?s premium valuations vis-a-vis the sector,? Religare stated.
And execution has always been the key at TCS. If you look at other companies like Infosys and Wipro, they too have the management bandwidth, expertise and brand power to match TCS. But the question is whether they have the executional rigour of the Mumbai-based firm. Many HR experts say that TCS has the simplest of technical tests for candidates. Yet these candidates are then put through some fine training and made to learn the ropes in the market place with the help of an able mentor. TCS also does not believe in any fancy pursuits (Infosys?s 3.0 comes to mind), and sticks to brick and mortar most of the time. It knows fully well that during tough times it is the tried and tested approach that delivers. TCS has also been able to successfully leverage on the Tata brand name, especially in the UK, where it has a strong presence. TCS is a leader that is fast pulling away from the rest of the crowd and the trend does not seem to reverse.
