TCS reinforces investors' faith in frontline IT stocks

Rex Mathew
17 October 2006

After Infosys' spectacular performance, TCS has come out with an encore and has reinforced investors' faith in frontline IT services companies.

TCS, the largest IT services company in Asia and the second IT major to announce second quarter results — after Infosys' spectacular show last week — has delivered numbers, which are better than analyst forecasts. The results have reinforced the view that large Indian IT services companies are seeing very strong business momentum and are not likely to be affected by the anticipated US slowdown.

After the Infosys results, the big question was whether other frontline IT companies would also be able to deliver similar results. TCS has managed to nearly match Infosys in sequential bottom line growth. However, sequential revenue growth is lower than Infosys as the base was higher for TCS. The company has managed to considerably improve its operating margins, mostly through better pricing and a reduction in other operating expenses.

Consolidated net profits of TCS for the quarter ended 30 September 2006 increased 43.37 per cent to Rs 1,018.68 crore or Rs 10.41 per share from Rs 710.52 crore or Rs 7.26 per share for the same quarter of previous year. Sequentially, net profits have increased 15.41 per cent from Rs 882.66 crore or Rs 9.02 per share for the previous quarter ended June 2006.

Consolidated revenues, including equipment sale, for the quarter went up 42.43 per cent to Rs 4,494.83 crore from Rs 3,155.82 for the previous year quarter and 8.18 per cent sequentially from Rs 4,154.85 crore for the previous quarter. Revenues from IT services increased 47.25 per cent year-on-year and 9.88 per cent sequentially.

Consensus estimates of TCS' second quarter net profits were in the range of Rs 930 crore to Rs 940 crore on revenues of between Rs 4,435 and Rs 4,480 crore.