TCS revenue growth rate trails Infosys, grows at 6.7% despite strong growth in Europe

Mumbai-based information technology services firm Tata Consultancy Services (TCS) has seen revenue growth of 6.7% for the third quarter of the current financial year, while its net profit remained flat at 0.2% growth.

The third quarter is relatively the weakest quarter for Indian IT services firms due to the long holiday period in North America and Europe. Both regions together contribute close to 75% of the industry's revenue.

However, TCS' rival, Bengaluru-based Infosys had reported an 8% growth in revenues and 23.5% growth in net profit during Q3.

The country's largest software exporter had reported revenue of Rs 39,854 crore in revenue during the December quarter of FY 2019-2020, a growth of 6.7% over the Rs 37,338 crore it had reported during the same quarter of previous fiscal. The revenue grew 2.25% sequentially over Q2.

TCS reported a net profit of Rs 8,118 crore during Q3, a flat growth of 0.2% against the Rs 8,105 crore it reported during the third quarter of preceding financial year. The company's net profit grew a little less than 1% sequentially.

The company's performance could have been much worse if TCS had not seen a growth of 16% year on year in Europe, the firm's second-largest market after North America. TCS said that its revenue in continental Europe (minus UK market) has doubled in the last five years.  North America grew at only 4.1% for TCS, dragging the company's overall performance.

"We saw the sectoral trends of the first half of the year continue to play out in the third quarter. Our robust order book during the quarter reflects our ability to address the business needs of different stakeholders in the enterprise and participate in our customers’ enterprise-wide transformation initiatives while making the business more resilient,” said Rajesh Gopinathan, CEO and managing director, TCS.

In a positive development, the company expanded its operating margin to 25%. According to the company's CFO V Ramakrishnan, TCS’ ability to expand margins in a volatile environment speaks of the strength of its business model, strong execution focus and the higher quality revenues.

IT firms have been facing headwinds in the form of weak growth in BFSI  (banking, financial services and insurance) across the world, the largest segment for these companies. A slowdown in investment in technology in the retail segment and speculations of a recession in developed markets have added to their fears.

For TCS, growth was led by life sciences and healthcare, which saw 17.1% growth, communications and media at 9.5% as well as manufacturing at 9.2% growth. While segments like BFSI grew 5.3%, retail at 5.1% and technology and services at 3.3% grew modestly.

TCS has had a net addition of 22,390 employees during the first nine months of the financial year with its overall headcount rising to 4.47 lakh people. The company's attrition rate was 12.2%, among the lowest in the industry.