Top ranked India-based IT services provider TCS followed up a bright year end (see here) with a “very, very satisfying performance” in Q1 according to MD and CEO N Chandrasekaran. For the quarter ended 30 June, TCS outperformed rival Infosys’ 23% growth (see Margins down, growth to slow at Infosys), with revenue up 31% and 6.3% qoq to 107b rupees ($2.41b). Meanwhile operating profit climbed 28% to $631.2m, although the margin dipped slightly to 26% vs. 27.5% due to TCS’ annual wage increase during the quarter of between 12% and 14%. This knocked the margin by 251 basis points. Wage inflation is an increasing problem for TCS and its peers as they seek to stem attrition – for TCS this has risen to 14.8% from 13.1% in Q111. Infosys however took a far bigger hit on its cost of sales in Q1 – Infosys' gross margin fell to 38.8% vs. TCS’ 44%.
There are some uncertainties on the horizon. Chandrasekaran said the difficult global macroeconomic environment is going to continue for some time. And clearly this is having an impact on the rate of new client wins. This quarter TCS brought on board 24 new clients, which was down sharply from the 39 added in Q4, and down from 36 in Q1 last year. Nonetheless it seems that TCS is doing a better job of farming its largest clients to make up for the dip – the number of clients worth $50m per quarter for instance is now 33 up from 27 this time last year.
In the UK the business seems to be continuing to go from strength to strength. Revenue here appears to have increased 36% to $368.9m as the UK’s share of the total revenues has kept pace with the broader group growth at 15.3% vs. 15.1% in Q111. We suspect a good deal of this growth will be from its £600m 10-year deal at the National Employee Savings Trust (NEST), formerly known as PADA (see TCS offers the right onshore/offshore mix at PADA). TCS has been quietly getting on with this major pensions BPS deal following continuation of the programme into stage two last October. TCS says the contract is “progressing as initially agreed”, so we can assume this is proving a very nice little earner for TCS.