Strong Demand Drives TCS Q3 Growth Momentum

Strong Demand Drives TCS Q3 Growth Momentum

Tata Consultancy Services (BSE: 532540, NSE: TCS), the leading global IT services, consulting and business solutions organization, reported its consolidated financial results according to Ind AS and IFRS, for the quarter ending December 31, 2020.

Highlights of the Quarter Ended December 31, 2020

  • Revenue at $5.702 Bn, +5.1% QoQ, +2.1% YoY
  • Constant Currency revenue growth: +4.1% QoQ, +0.4% YoY
  • Net Income at $1.18 Bn+3.4% QoQ, +3.7% YoY
  • Operating Margin at 26.6%; Net Margin at 20.7%
  • Strong Cash Conversion: Net Cash from Operations at $1.62 Bn | 137.4% of Net Profit
  • Consolidated headcount: 469,261 | Net addition: 15,721 | Women in the workforce: 36.4%
  • 366K+ employees trained in new technologies; 444K+ on Agile methods
  • IT Services attrition rate dips to a new all-time low, at 7.6% LTM
  • Interim Dividend per share: `6.00 | Record date 16/01/2021 | Payment date 03/02/2021

Commenting on the Q3 performance, Rajesh Gopinathan, Chief Executive Officer and Managing Director, said: “Growing demand for core transformation services and strong revenue conversion from earlier deals have driven a powerful momentum that helped us overcome seasonal headwinds and post one of our best performances in a December quarter. We are entering the new year on an optimistic note, our market position stronger than ever before, and our confidence reinforced by the continued strength in our order book and deal pipeline.”

He added: Looking beyond the immediate business growth opportunity, we are tremendously excited by what lies ahead. Cloud is enabling a new class of boundaryless organizations, that can seamlessly partner and collaborate within larger ecosystems to create innovative purpose-driven offerings to customers. This boundaryless value creation, supported by the seamless fabric of technology enabled by cloud together the seamless fabric of talent enabled by our SBWS™, will redefine industry after industry over the longer term. Our intimate knowledge of our customers’ business contexts, our strong relationships across ecosystems, and our continued investments in research and innovation make us their preferred partner in their growth and transformation journeys.”

N Ganapathy Subramaniam, Chief Operating Officer & Executive Director, said: “Our Q3 growth is a very satisfactory outcome of our ability to leverage the proactive investments made to capture the strong demand and be meaningful to our clients. It is a strong endorsement of our resilience, way of working and the relative competitiveness of our products and services. We celebrated the accomplishment of our Enterprise Agile by 2020 vision during the quarter, and with SBWS™, we have a well-oiled location-independent execution model that brings in the resources just in time, efficient execution, and machine-led delivery governance that are delighting our customers. All these augur well to progress our 25×25 future of work vision.”

He added: We have had healthy deal closures and the growth has been broad based on a sequential basis, setting ourselves well for the future. We also welcome to the TCS fold, the professionals from Pramerica and Postbank Systems, accelerating our growth plans in Ireland, Germany and more broadly in Europe.

V Ramakrishnan, Chief Financial Officer, said: “Strong growth across all our verticals, and operational benefits from our SBWS model allowed us to post the highest operating margin in the last five years, even after rolling out a salary increase this quarter. We also had an all-time high cash conversion in Q3. This and our strong balance sheet position us very strongly to seize the opportunities that the current market offers, and more closely partner our customers in their growth and transformation journeys.”

Q3 Segment Highlights**

Industries: All verticals showed good sequential growth, led by Manufacturing (+7.1%), BFSI (+2%), Life Sciences and Healthcare (+5.2%), Communications & Media (+5.5%) and Retail and CPG (+3.1%). On a year on year, constant currency basis, Life Sciences and Healthcare continued to grow in double digits at 18.2%. BFSI (+2.4%) and Technology & Services (+2.4%) also moved into positive territory.

Markets: Sequential growth was led by North America (+3.3%), India (+18.1%), UK (+4.5%), and Continental Europe (+2.5%). Other markets grew as well, with and Asia Pacific growing +2.6%, MEA +6.7%, and Latin America +3.1%.

Services: Continue to see a strong rebound in growth and transformation services as customers seek to operationalize new models. Growth in the quarter was led by Cloud Services, Analytics & Insights, Cognitive Business Operations, IoT and Quality Engineering & Transformation Platform Services.

  • Consulting & Services Integration: Continued robustness in demand, led by digital and cloud strategy, enterprise agility, mergers and acquisitions, and supply chain and finance transformation.
  • Cognitive Business Operations: Experiencing strong growth due to acceleration of digital adoption and hyper-automation across enterprises to enhance agility, customer experience, agility and deliver superior business outcomes. Growth in Q3 was led by datacenter services, service desk and end-user computing, supply chain operations, and automation services.
  • Digital Transformation Services: There was strong demand for hyperscaler cloud services. Key areas included mainframe and legacy modernizations, data modernization on cloud (MDM, data lakes), augmented analytics for in-context insights, risk regulatory & compliance analytics and use of cloud platforms for collaboration. Cybersecurity continued to be of the highest priority as new work models emerge.

The need to enhance user experience across enterprise functions drove good growth for professional services around Salesforce, SAP S/4 HANA and BPM. Consumer demand for automated and contact-less services led to good growth for TCS Interactive, in design-led services, digital marketing and content services. Growth in IoT was led by strong demand for implementing IoT-enabled remote monitoring and self-optimizing plant operations.

New offerings launched in Q3 include TCS CogniX™, an AI-driven suite of prebuilt solutions for accelerating digital transformation of operations, ConvertCore™ for accelerated S/4HANA transformation assessment & migration and an expanded version of Crystallus™, a contextualized preconfigured solution for enterprise transformation, to cover Railways.

** Growth in QoQ CC

Research and Innovation

TCS Access Infinity platform, developed by the Accessibility Center of Excellence, won the Zero Project’s 2021 Award for Innovations related to ICT. The platform allows publishers to generate real-time accessible content for persons with visual impairment or printing disabilities, enabling one-click conversion into multiple formats. It powers Sugamya Pustakalaya, an online accessible library that today hosts over 200,000 pages of university study material and over 450,000 titles in 17 languages.

As on December 31st, 2020, the company has applied for 5,634 patents, including 134 applied during the quarter, and has been granted 1,713 patents.

Human Resources

TCS’ consolidated headcount stood at 469,261 as of December 31, 2020, with a diverse workforce comprising 147 nationalities, and women constituting 36.4% of the base.

TCS’ investments in skilling and developing its workforce, and the use of innovative training methods, continue to deliver industry-leading outcomes. Over 366,000 employees have been trained on multiple new technologies, and over 444,000 have been trained on Agile methods.

The company’s people culture, and world-leading HR practices have made it the global industry benchmark in talent retention. In Q3, its IT services attrition rate (LTM) was at 7.6%.

While continuing to stay closely focused on employee engagement and morale, we are now gearing up for growth. Our sustained investment in organic talent development is now paying rich dividends, helping us support our business growth. We are also continuing along our journey to reimagine and transform the HR value chain, leveraging technology innovatively to digitize processes, virtualize interactions, and enhance responsiveness. These initiatives for entry-level hiring, training and onboarding were so successful, we are now rolling out similar models for mid-level hiring and incremental reskilling. All this has resulted in a superior employee experience, while materially driving up our throughput,” said Milind Lakkad, Chief Human Resources Officer.