TCS third-quarter earnings ⁠— 0.3% dollar revenue growth, CEO commentary and other highlights

  • The technology major reported a 0.3% growth in dollar revenue in constant currency terms.
  • Operating margin of 25% was better than most estimates.
  • The company declared a dividend of ₹5 a share along with its earnings.
The third quarter revenue for Tata Consultancy Services (TCS) grew 0.3% in constant currency terms compared to three months ago, largely in line with market estimates.

In rupee terms, the net profit was ₹8,118 crore nearly the same as last year’s ₹8,105 crore. The company’s operating margins however came in a tad higher than analyst expectations at 25%. This was largely due to the weakening of the rupee.

Software exporters like TCS benefit from the weakening of rupee because they earn most of their revenue in dollars.

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Its revenue growth was driven by European business which recorded around 16% growth compared to a year earlier. “Our participation in the growth and transformation spends of our customers is most evident in our sustained success in continental Europe where our revenues have more than doubled in the last five years,” said Rajesh Gopinathan, CEO and managing director of the company.

TCS’ domestic business grew faster than its North American business as the former recorded a growth of 6.4%, while the latter remained in the 4% range, again, compared to the same time last year.

These are some of the highlights of the management commentary:

CEO Rajesh Gopinathan: The operating margin has been very strong, up over 100 basis points, partly due to the weaker rupee.
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Cash balance restored to ₹43,000 crore nearly as much as it was at the start of the fiscal year, despite many payouts.

Growth in retail has been strong in Europe. North American market has been challenged especially in the retail vertical.

Have some marquee deal wins in Europe, especially in Germany
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The UK business has been hit as expected because of the political uncertainty. The level of uncertainty has reduced and the UK biz may return to growth in 2-3 quarters.

Banking, financial services, and insurance is a bit more complex vertical. We are participating very well in Europe and Australia. In US, we are reaching out to newer and smaller players.

Too early to call next year’s client budgets. The mood has been swinging due to the uncertainty around the US-China trade war.
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The aggregate TCV for this quarter is $6 billion, adds up to $18 billion for the first three quarters of the fiscal year. It shows the level of activity in the market.
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