Yet another strong quarter from TCS leads to upgrades; Axis overcomes asset quality and margin concerns; order booking weakness a major worry for L&T
Tata Consultancy Services (TCS)
The dollar revenue for the country’s top software services exporter, was exactly in line with estimates at $2.14 billion, up 7% quarter on quarter (q-o-q). Revenue in rupees was about middle of the expectations spectrum at Rs9,663 crore, up by 4% q-o-q.
Business in North America grew by 7%, in the UK by 12%, and in the Asia Pacific by 19% q-o-q. The Banking, financial services and insurance (BFSI) segment grew by 8% and retail by 7%. Volume growth was strong at almost 6% and pricing showed some improvement.
TCS has outperformed Infosys Technologies—the country’s No.2 software exporter—for the seventh consecutive quarter on year-on-year EBITDA and net profit growth.
EBITDA margins improved to above 30%, partly aided by bad debt reversals; the margins gap between TCS and Infosys is now only about 300 basis points against a peak of 830 basis points two years ago. Margins have risen as a result of better sales productivity and control of manpower costs.
Net profit was much higher than expected at Rs2,330 crore, up almost 11% q-o-q.
Other positives include broad-based growth (except in telecom), a pick-up in clients’ discretionary spend and a positive commentary on the deal pipeline and pricing outlook.
The fact that TCS hired over 20,200 people (over 7,700 lateral hires) in the quarter (after hiring nearly 19,300 people in the previous quarter) suggests that it is preparing for a big year ahead. Attrition has come down from 20% in the second quarter to 17%.
Net interest income beat the higher end of the expectations spectrum. Provisions were almost 16% lower y-o-y.
The CASA (current account savings account) ratio improved q-o-q but it was still lower y-o-y. Profit also beat the higher end of the expectation spectrum.
Asset quality improvement and margin expansion were the highlights of the quarter. Net interest margin (NIM) was at 3.8%, up 13 basis points on the quarter, against expectations of flat to slightly lower margins.
Fresh slippage ratio (as a percentage of previous years’ loans) moderated to 1.6% (compared to 2.2% in the past two quarters). Loan book growth was at 46%, again slightly higher than expectations. Over the next few quarters, loan growth could moderate as the bank grapples with a high base.
Fee income growth at 21% was good. This came mainly from the large corporate segment (up 36%) and retail banking (up 21%). But fee income from business banking, capital markets and agri/SME banking continues to be under pressure. A slight concern is that in recent quarters the gap between fee growth and loan growth has been expanding, with fee growth lagging loan growth.
Treasury profits were at Rs130 crore, up from Rs110 crore in the second quarter, and came in mainly from fixed income portfolio.
Larsen & Toubro (L&T)
Revenues came in much higher than expected for the country’s biggest engineering company. Net profit was also above the higher end of expectations. However, margins were much lower than expected due to a huge increase in the cost of goods and services.
Raw material costs went up 73% on year, subcontracting charges were up 39% and construction material charges were up 32%. Margins were also impacted as for some orders execution had started but had not entered the ‘margin recognition phase’. Most brokers expect margins to pick up at least slightly in the next quarter.
Order booking was a major disappointment, down 25% y-o-y and 35% q-o-q. Even so, L&T has maintained its full-year inflow guidance of 25% with caveats of slippages in FY12. The company said that a lot of the expected orders are likely to be booked only in March 2012. L&T said various scams, split up of large projects, politics, land acquisition issues and delay in allocation of coal blocks were some of the reasons for order bookings getting delayed.
The order backlog is up 26% on year and flat on the quarter. The current order backlog is probably enough to provide revenue visibility for a couple of years.
Infrastructure and power are likely to have contributed a larger chunk of L&T’s segmental revenue in the third quarter compared to the first half, believes institutional brokerage Kotak. The share of oil and gas would also have increased substantially.
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New Delhi: Software exporter HCL Technologies today reported a 34.2% jump in net income to Rs399.70 crore for the quarter ended 31 December 2010 against Rs297.7 crore in the October-December quarter last fiscal, reports PTI.
The consolidated revenue of the company as per US GAAP, grew by 27.8% to Rs3,888.4 crore in the December quarter from Rs3,041.4 crore in the year-ago period, HCL Technologies said in a statement.
The company has also declared a dividend of Rs2 per share.
“The dynamic demand environment necessitates a sharp focus on innovation and tangible value generation for customers. We continued to register impressive win ratios and superior customer acquisitions with 50 plus transformational deals signed during the year,” HCL Tech vice chairman and CEO Vineet Nayar said.
The company added 2,049 employees on a net basis in the said quarter, and made 8,379 gross additions, taking its total strength to 72,267.
Bolstered by the smart quarter numbers, shares of HCL Tech zoomed by 5.93% to hit a year’s high of Rs517.50 a piece in early trade on BSE.