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TCS: Margin expansion propels net profits
Jan 18, 2012

Tata Consultancy Services (TCS) has announced the third quarter results of financial year 2011-2012 (3QFY12). The company has reported a 13.5% quarter-on-quarter (QoQ) growth in its sales and an 18.4% QoQ increase in its net profits. Here is our analysis of the results.

Performance summary
  • Net sales grew by 13.5% QoQ in 3QFY12, largely driven by steep rupee depreciation as the growth in volumes was 3.2% QoQ during the quarter. For the nine months ended December 2011 (9MFY12), sales grew by 31.2% Year-on-Year (YoY).
  • Operating margins expanded by 2.1% QoQ to 29.2% during the quarter as compared to 27.1% seen during the previous quarter (ending September 2011). This was mainly due to lower cost of sales (as a percentage of sales). However for 9MFY12, margin at operating level was slightly lower at 27.6% as compared to 28.0% in the same period last year.
  • Higher operating margins and lower effective tax rate led to an 18.4% QoQ growth in net profits. Profits would have been higher if not for other losses during the quarter. For 9MFY12, net income increased by 21.6% YoY.
  • Added a net of around 11,981 employees during the quarter. Attrition rate currently stands at 12.8%, lower than the 13.7% seen during the previous quarter (2QFY12).
  • The company added 40 new clients during the quarter. The total number of active clients at the end of the quarter was 1,003.
  • Proposed an interim dividend of Rs 3 per share (yield of 0.3%). Including this, total interim dividend for 9MFY12 is Rs 9 per share (yield of 0.8%).

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