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K. Venkatasubramanian

TCS has delivered an average set of numbers this quarter. The results, however, appear to indicate that the impact of subprime crisis on its BFSI clientele’s IT spending and revenue growth slowdown due to rupee appreciation may not be very pronounced.

The revenue for the quarter stood at Rs 5,640 crore, a growth of 8.4 per cent on a sequential basis. EBITDA at Rs 1,479 crore and net profit at Rs 1,252 crore have grown 10.5 per cent and 4.1 per cent, respectively.

In terms of contribution to revenues, BFSI (43.3 per cent) has, in fact, seen a marginal increase, indicating that the company’s mortgage-client exposure may be lower. TCS has hedged $2.6 billion, nearly 50 per cent of its revenues, which may mitigate in part the effect of the appreciating rupee.

The medium term prospects for TCS appear to be reasonable on the back of good performance in certain key metrics.

TCS now derives 30 per cent (25 per cent the previous quarter) of its consulting revenues offshore. If this trend in offshoring consulting services sustains, there is likely to be a significant expansion in margins. This, along with the fact that all other high margin non-ADM (application development and maintenance) services now contribute over 50 per cent of the revenues, is a healthy augury for the company. Fixed price contracts are also showing an increasing trend. This would ensure optimal resource deployment and utilisation of resources and manpower. It could also help TCS device a sound hedging strategy. Increasingly, overseas clientele are more inclined towards fixed price contracts rather than time and material based billing.

Attrition at 11.5 per cent has remained flat over the quarter, indicating lowered execution risks.

While the trends in revenue growth appear stable based on this quarter’s performance, investors might have to wait till the end of this year or early next year for a clearer picture to emerge on trends in IT spends by clients in the US and Europe.

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