On a call with analysts, Parekh explained the reason for his company’s conservative approach.
We started FY19 with guidance that was what we could see at the time.
Then as the year continued we were comfortable to raise the guidance.
At TCS, all major verticals reported double-digit constant currency growth.
Mumbai | Bengaluru: Tata Consultancy Services led the way with a record performance as India’s two largest software exporters announced strong revenue growth for the fourth quarter of 2019 financial year, with the Mumbai-based IT giant remaining bullish on continued growth this year. Infosys, India’s second biggest IT company, however forecast slower-than-expected growth and lowered profits in the current fiscal year as it invests more on training and hiring locally in the US, its largest market.
In a first, both companies announced their annual financial results on the same day. TCS announced a final dividend of Rs 18 per share. Infosys said it will pay a final dividend of Rs 10.5 per share.
Strong growth in revenue from banking and financial services boosted TCS’ performance as it powered ahead with its best show in 15 quarters. Profits grew 17.7 per cent to Rs 8,126 crore in the fourth quarter on revenues of Rs 38,010 crore, which expanded 18.5 per cent.
“It’s been a picture perfect year and TCS has fired on all cylinders,” said chief executive officer Rajesh Gopinathan. Pointing to a “robust deal pipeline,” he said that “despite macro uncertainties ahead, (the) strong exit (from FY19) positions us very well for the new fiscal.” TCS does not offer a specific growth forecast.
In contrast, Infosys, once considered the industry bellwether, disappointed analysts by forecasting lower-than-expected growth at 7.5-9.5 per cent for FY20 and slashed margin expectations to 21-23 per cent.
“We are building Infosys for the next 10-15 years, not the next quarter,” Salil Parekh, chief executive officer of Infosys told reporters at the company’s headquarters in Bengaluru on Friday. In FY19, the company’s revenue grew 9 per cent to $11.8 billion and margins stood at 22.8 per cent. Analysts had anticipated the lower margin forecast but were expecting growth guidance to be between 8-10 per cent.
“TCS’ earnings performance for Q4 looks relatively better owing (to) margins disappointment at Infosys,” wrote Sanjeev Hota, AVP Research at Sharekhan by BNP Paribas in a note.
On a call with analysts, Parekh explained the reason for his company’s conservative approach. “We started FY19 with guidance that was what we could see at the time. Then as the year continued we were comfortable to raise the guidance. Our guidance now is what we see, if anything changes we will come back to it,” he said.
For the full year, TCS reported 11.4 per cent growth in revenues to $20.9 billion on the back of increasing business from customers across geographies and verticals. Operating margins, calculated as revenue minus expenses, stood at 25.6 per cent, which Gopinathan termed as “the highest among IT services firms globally.”
Digital revenues contributed 31 per cent of the revenue in the fourth quarter, growing 46.4 per cent in a year. Operating margins in the quarter to March was 25.1 per cent. The company said it will be holding to 26-28 per cent margin band that it has set as an internal target. It won total contracts worth $ 6.2 billion in the quarter to March.
“We are exiting the year much stronger than when we entered. We are focused on our strategy. We should be able to get our margins back and keep in that range,” said Gopinathan.
At TCS, all major verticals reported double-digit constant currency growth. Banking, financial services and insurance grew11.6 per cent, retail at 9.9 per cent, energy and utilities at 11.3 per cent and life sciences grew by 18.2 per cent.
"If you look at where we were last year, we had very large segments that were dragging growth. We now have a much more even portfolio and all the segments are close to (the) company average. We don't have any specific large segments as laggards," he said.
Despite concerns over an impending slowdown in the US economy and the uncertainty due to Brexit discussions in the UK, Indian IT services firms have seen growth revive faster as global companies adopt technology to transform business.
Outsourcing firms are also digitising the existing data from customers and businesses to offer improved services and solutions, while attempting to ring-fence themselves from competition.
“We don’t see any macro-economic slowdown today. If that shows up in the second half of the year we will see how that plays out,” Parekh said.
Parekh, who completes his first full year at Infosys, said that the company was performing in line with the three-year strategy to accelerate its business.
Digital business, which generates higher margins, accounted for 34 per cent of the revenue, but Parekh declined to state when the company might be able to start growing its margin again.
Infosys for the fourth consecutive quarter saw its attrition touch 20 per cent as more trained engineers in newer skills such as digital quit the company. The company said it was making interventions and expects that it would come down to 15 per cent in the next couple of quarters.
TCS’s Gopinathan said that the company had a digital business of $6 billion, which was growing at 50 per cent a year. It was also making investments in R&D and got over 940 patents in FY19 and had filed for an additional 5,000 patents.
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