Largest software exporter TCS on Wednesday reported a 6.87 per cent dip in the September quarter net profit at Rs 7,504 crore but said the demand has recovered faster than projected and will be sustainable going forward as well.
It had to set aside Rs 1,218 crore as provisions because of the trade secrets lawsuit filed by Epic Systems, if not the net profit would have grown 4.9 per cent to Rs 8,433 crore.
The board of the company, which is owned over 72 per cent by Tata Sons, also announced a Rs 16,000 crore buyback of shares. The management said it is in line with the capital return policy to give back between 80-100 per cent of free cash flows.
The company, which had decided to defer the regular salary hikes, announced that it will be implementing performance-based increments from October 1 onwards.
Revenues for the July-September period came at Rs 40,135 crore, up 3 per cent when compared to the year-ago period, and its chief executive and managing director Rajesh Gopinathan said the Rs 40,000 crore mark was reached one quarter ahead of what was expected at the start of the pandemic and stressed that the company is in the midst of a "sustainable demand recovery".
It is confident about the demand recovery, which "stands on stronger legs", but the prevailing economic climate and realities on the health front make it "cautious", Gopinathan said.
The operating margin expanded 2.2 per cent to 26.2 per cent on a year-on-year basis and Gopinathan said this has been two quarters ahead of expectations. Its chief financial officer V Ramakrishnan attributed the margin expansion into the target band of 26-28 per cent to business growth, strong execution, higher employee utilisation and made it clear that currency has had no impact.
The deferral of the hikes also helped the margins, and the management acknowledged that implementation of the increments will keep the margins under pressure in the second half of the fiscal.
It also expects the pandemic to have an "exaggerated" impact on the seasonally slow December quarter and will be looking at other wins to bolster both revenue and margin prospects, Gopinathan said.
On the legal suit, Ramakrishnan explained that the provision has been made as per accounting norms as a court has not granted the company relief for rehearing sought by it, but made it clear that it does not mean that a payment is "imminent". In August, a US court had upheld the compensatory damages of USD 140 million in the case.
The company recorded new deals of USD 6.1 billion during the reporting quarter and Gopinathan said the wins were across the board, but not large in size as many can be classified as small and medium-sized ones. There was only one large deal of over USD 100 million annual revenues signed.
A bulk of the demand is for digital transformation deals, which have been accelerated because of the pandemic as every company focused on building a resilient digital core that provides secure access to both their customers and employees in a seamless fashion, Gopinathan said, making it clear that the revenue booking is not on "delayed deals".
Its biggest market of North America and the largest segment of banking, financial services and insurance posted a sequential increase of 3.6 per cent and 6.2 per cent, respectively. Gopinathan said the North American performance was led by deals in retail and BFSI.
The UK market, which recorded a 3.8 per cent growth in revenues in the September quarter as compared to the preceding June quarter, continues to be volatile and the company will assess the situation for a few more quarters before coming to a conclusion, Gopinathan said.
The company refused to comment on the new changes in the H-1B visa rules in the US, stating that it is still perusing through the documents, but affirmed that it will comply with local rules in all the jurisdictions it operates in.
It added 16,000 people on a gross basis and 9,864 people on a net basis in the three months to take its overall headcount to 4,53,540 people and its head of human resources Milind Lakkad said this included 7,200 freshers joined as trainees during the quarter in India, 1,000 in the US and 100 in Europe.
The planned salary hike will be across the board from October 1, Gopinathan said, adding it has already completed the promotion process as per the schedule.
On the Rs 16,000-crore share buyback, he said the board takes a call on which route to adopt between a buyback and special dividend as per the interests of all the stakeholders. It opted for a buyback this year, whereas the same was a special dividend last fiscal, he said.
It will be buying back 5.33 crore shares which represent 1.42 per cent of the outstanding equity in the company at a price of Rs 3,000 per share.
The board has also recommended an interim dividend of Rs 12 per share at Wednesday's meeting.
The TCS scrip closed at Rs 2,737.40 apiece on the BSE on Wednesday, up 0.78 per cent.