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The export-heavy $108 billion Indian IT industry showed an upbeat earnings momentum during the October-December stretch backed by buoyancy in outsourcing demand. But it wasn’t, a quarter phenomenon. Over the last 9 months of FY14, top-tier software-services players, have pumped up its operating profit margin (OPM) by almost 3%, fueling its bottom-line growth consistently.
The country’s largest IT-services exporter
Tata Consultancy Services (TCS) recorded a 31.4% growth in operating margin for the recently concluded December period, up from 28.6% posted in the first quarter of the current fiscal. Bangalore-based Infosys, which undertook a cost-optimisation drive including streamlining its onsite workforce in the last few months, managed to pull up its margins by 150 basis points at 25% during the quarter.
For cross-town rival Wipro it was a straight 3% rise in operating margin over the last nine months. During the October-December period the Bangalore-headquartered IT company posted OPM at 23% from 20% in Q1. Similarly, HCL Technologies reported margin at 26% during the quarter, up 3% from the April-June period.
Experts point out that the improvement in margins by the Mumbai-headquartered TCS has lot to do with steering internal
efficiencies within the organisation in terms of utilisation and deploying a better mix of employee matrix. During the quarter, TCS posted net profit of R5,314 crore, up 13% sequentially.
In a recent analyst call post results Rajesh Gopinathan, CFO, TCS said, “Utilisation and other operating efficiencies and realisation improvement gave us 65 basis points improvement in operating margin, of which we reinvested 62 basis points into strengthening our front end sales and other SG&A activities.”
TCS has clearly spoken about having an operating margins in the target range of 26-28%. “I think we are very comfortable with the range and we want to stay with that range. We are not in a hurry to reinvest in any ad hoc way, but we will reinvest definitely in a strategic way,” TCS CEO N Chandrasekaran said during the earnings call.
IT major Infosys capped the December quarter, traditionally a weak period for IT firms, with a 21.4% increase in consolidated net profit at Rs 2,875 crore, an increase of 19.4% quarter-on-quarter. Internally, Infosys has seen management transformation and rationalisation of cost in the last several quarters, including reshuffle of top executives and a string of high-profile exits.
Infosys feels that cost optimisation is one of the initiatives