TCS beats Infosys, remains top IT firm

India's largest IT exporter TCS has beat Street expectations in the first quarter. TCS clocked Rs 10,797 crore in sales in the first quarter against Rs. 10,157 crore in the fourth quarter of last fiscal. That translates into a revenue growth of 6.3 per cent.

The net profits for the first quarter have come in at Rs. 2,380 crore against Rs 2,380 crore in the fourth quarter of 2010-11. Analysts had expected net profits to decline on wage hikes in the first quarter. But despite a 12-14 per cent wage hike, the company was able to maintain its bottomline.

The results are significantly higher than expectations. These numbers are according to international financial reporting standards (IFRS).

The company's operating margins stood at 26.21 per cent against 28.3 per cent in the last quarter. The company made forex gains of Rs 79 crore against a loss of Rs 43 crore in the last quarter.

TCS increased the number of clients in the 50 million category from 27 in Q4 of the last fiscal to 33 in the first quarter of this fiscal.

TCS expects to hire up to 20,000 people in the current quarter of FY12. The company, which added a net 3,576 employees during the first quarter, plans to add 60,000 workers till March 31 in the ongoing financial year (2011-12).

Unlike Infosys, TCS does not give out guidance for the coming quarters but the first quarter results show that TCS has comprehensively beat Infosys on all accounts. TCS accounts for India's 20 per cent IT exports.

Commenting on the results, TCS CFO S Mahalingam, said: "By focusing and optimizing operations to support our growth, we have been able to limit the erosion in operation margins by using various levers like utilization and productivity."

Earlier the result season got off to a disappointing start with IT bellwether Infosys reporting in line numbers for the first quarter. Infosys has been a darling of the investor community and analysts expect the company to better its margins quarter after quarter. That has not happened in the first quarter of this fiscal (2011-12). Infy's consolidated net profits for the first quarter have declined 5.3 per cent to Rs. 1,722 crore from Rs. 1,818 crore in the fourth quarter.

The consolidated revenue has grown 3.2 per cent to Rs. 7,485 crore in the first quarter from Rs. 7,250 crore in the fourth quarter. While the numbers have been ok, Infosys' muted guidance, especially a conservative growth in earnings per share (EPS), disappointed the Street.

The management has justified the conservative guidance. S D Shibulal, Chief Operating Officer of Infosys said global uncertainties have to be factored in.

He said: "This is a normal year but still there are uncertainties in the environment. If you look at consumer confidence, sovereign confidence...there is still tremendous weakness in those areas. If you look at Europe, there is uncertainty, unemployment. That is leading to a client behaviour which is pretty unique. While the budgets are there to spend, the decision making cycles are slightly longer. So, it is prudent for us to remain cautious."

"We are prepared for higher growth. Out utilisation is 74 per cent. We have enough people in the system. We have added 26 clients in this quarter. Our order pipeline is pretty strong."

Infosys' Chief Financial Officer V Balakrishnan said going forward the margins will continue to be under pressure because of the slowdown in the global economy.

"Typically in the first quarter, the wage increase comes into play and that affects margins by 3 percentage points. That is what has happened in this quarter and that is built in our guidance. We said in the beginning of the year that first quarter margins could decline by 4 per cent that took into account the wage increase what we were supposed to give. We came better than that .We have seen the margin decline by only 3 percentage points which is only because of the wages," he said.

Infosys, which has Goldman Sachs, BT Group and BP Plc among its clients, added 26 new clients during the quarter.

As of June 30, 2011, Infosys' cash and cash-equivalents, including investments in available-for-sale financial assets and certificates of deposit, stood at Rs 16,969 crore, as against Rs 16,005 crore as of June 30, 2010.

Commenting on the first quarter earnings, S. Gopalakrishnan, CEO and Managing Director of Infosys said, "We have re-organized the company to be more industry domain focused which will accelerate innovation and make us more responsive to clients' needs.”

Despite average numbers, Infosys said it will hire about 12,000 employees in this quarter. The company currently has over 1.33 lakh employees.

Infosys CEO and Managing Director S Gopalakrishnan said the company is looking to hire about 12,000 and it is continuing with yearly target at 45,000 people.

The results come in the backdrop of key management changes. NR Narayana Murthy will signoff the results for one last time before he calls quits in August. Director of HR TV Mohandas Pai has already quit and current CEO Kris Gopalakrishnan will also step down soon.