Staff bonus pulls down TCS net by 27%,but co upbeat about FY16

Mumbai: Country's largest software exporter Tata Consultancy Services (TCS) has reported a 27 per cent dip in its March quarter net profit at Rs 3,858.2 crore, impacted by one-time Rs 2,628 crore employee bonus, but
staff bonus pulls down tcs net by 27 but co...
PTI April 17, 2015 11:45 IST

Mumbai: Country's largest software exporter Tata Consultancy Services (TCS) has reported a 27 per cent dip in its March quarter net profit at Rs 3,858.2 crore, impacted by one-time Rs 2,628 crore employee bonus, but exuded confidence about surpassing the industry average in the current fiscal.

“As we look into future, I think we are extremely well placed … our deal wins, our order-book and the client sentiment look positive,” TCS Managing Director and Chief Executive Natarajan Chandrasekaran told reporters here.

There was a 2.70 per cent impact on margins (Rs 676 crore) because of the “cross currency headwinds to the profit, which grew 12.4 per cent if we factor in the impact of the one-time outgo because of the bonus to the employees”, he said, adding the pre-tax margins were at 27.2 per cent.

The Tata Group company, however, remains very upbeat about the next fiscal (2015-16) and will continue to outgrow the industry, he said.

Revenue for the quarter rose 12.4 per cent to Rs 24,219.8 crore, while for the full fiscal it rose 15.7 per cent to Rs 94,648 crore. The net profit for the full fiscal rose 13.5 per cent to Rs 19,648 crore.

Nasscom has estimated a revenue growth of 13-15 per cent for Indian IT industry in the current 2015-16 fiscal.

Describing the numbers as “slightly below expectations on the revenue front”, Dipen Shah of Kotak Securities said he expects TCS to maintain margins in the stated 26-28 per cent band going ahead.

The company will be hiring 60,000 people at a gross level in 2015-16, which will include 35,000 offers made at campuses, its HR head Ajoy Mukherjee said. The overall number is a tad lower than the 67,000 gross additions in 2014-15.

The company's attrition accelerated to 14.9 per cent in 2014-15, which is among the highest in the recent years, and Mukherjee added it will be focusing to arrest the same.

The “involuntary attritions”, which had got it bad press since December continue to be in the 1-2 per cent band, he said, stressing that there has not been any spike in the same.

Employees who have spent over a year at the company will receive a week's salary for every year spent at the company and the Rs 2,628 crore one-time bonus payout will come in April or May.

TCS also announced an 8 per cent average increment for staff within India and 2-4 per cent for international ones, adding that the average salary hike for the top performers will be 10 per cent.

Chief Financial Officer Rajesh Gopinathan said the company is recognising the bonus payout as a fixed liability and booking it in the final quarter for 2014-15 itself.

The company's cash and equivalents stood at Rs 23,200 crore as of March end, he said, adding a Rs 17,000 crore payout in form of dividend and a capital expenditure of Rs 2,800 crore in the last fiscal pulled it down.

In 2014-15, the company added five clients of over USD 100 million, 15 of over USD 50 million and 26 in the over USD 5 million category, he said.

TCS sees the telecom, energy and the insurance business where it operates through the acquired subsidiary Dilligenta, as the primary headwinds, Chandrasekaran said.

He said in spite of the trouble with Dilligenta, Britain is doing well and so is Continental Europe, North America and Japan, where it had faced some tepidness in the recent past.

In India, which contributes a small fraction of the work it does but has various programmes like the new government's digital transformation initiative, Chandrasekaran said there was a muted growth but TCS does not foresee a sharp decline from here.

Gopinathan said the company benefited Rs 660 crore in forex gains during the quarter and added that there will not be any change in its hedging strategies, even though there is an unprecedented volatility in the market. When asked about the company's preference between protecting margins in the targeted 26 to 28 per cent band, and continuing with capital expenditure in the face of the currency volatility, Gopinathan said it will continue to remain committed to the investments on the ground but will take a “calibrated” approach for the upcoming exigencies.

In a first for the company when it comes to the digital space, it reported a USD 125 million revenue in 2014-15 from the cloud segment, adding it has grown 55 per cent. However, Chandrasekaran declined to give additional numbers.

TCS has in the past said it expects the digital revenues to contribute USD 5 billion in revenues in the medium term.

Chandrasekaran said the new mantra for the company is “default is digital”, after the “digital re-imagination” theme launched four years ago.

When quizzed about Steven Heldt, a north American employee who has dragged the company to court for favouring South Asians when it comes to hiring and promotion, Chandrasekaran refuted the charges saying, “from our point of view, it isn't true and we will be fighting it.”

Right before the result announcement, the company had announced a whopping Rs 2,628 crore one-time bonus to employees to celebrate its one decade of being a publicly traded company.

TCS went public in August 2004 and today is the country's most valued company with over Rs 5.05 lakh crore in market value and also the second most valued IT firm after IBM.

Globally, all employees who have completed at least one year of service will be eligible for the special bonus. The company had 3.18 lakh employees as of December 2014 quarter. Each employee will be given a reward equivalent to one week's salary for every year of service completed at TCS, it added.

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