TCS, Asia''s largest IT services company, has announced first quarter results which are modestly above analyst expectations. The company managed strong volume growth during the quarter and is very positive about sustaining it in the coming quarters, though margins are under pressure.

For the quarter ended 30th June, 2006, TCS has reported a consolidated net profit of Rs882.66 crore, an increase of 35 per cent over Rs653.85 crore reported for the same quarter of the previous year. On a quarter-on-quarter basis, net profits have increased 6.06 per cent from Rs832.12 crore for the quarter ended March 2006.

Consolidated revenues have increased 46.27 per cent for the quarter to Rs4,227.19 crore, from Rs2,890.01 crore for the previous year quarter. On a sequential basis, revenues have gone up 13.96 per cent from Rs3,709.12 crore for the March 2006 quarter.

Operating profits for the quarter increased 30.97 per cent from the previous year quarter and 7.88 per cent from the March 2006 quarter. Operating margins as a percentage of total revenues declined considerably to 25.02 per cent during the quarter, as compared to 28.28 per cent for the previous year''s quarter, and 26.75 per cent for Q4 2005-06.

The decline in operating margins was mostly on account of rising employee costs. Salary costs increased 142 per cent over the previous year quarter and 22.63 per cent sequentially. Total operating expenses increased 52 per cent year-on-year, and 16.19 per cent sequentially.

In line with the general industry trend, TCS has also seen revenues from the Americas decline to 53.2 per cent of total revenues from 57.9 per cent for the previous year quarter. Revenues from Europe, including UK, increased to 27.7 per cent from 22.1 per cent. Domestic revenues declined to 10.6 per cent from 13.3 per cent.

Offshore revenues increased modestly to 38.1 per cent from 37.1 per cent for the previous year quarter and 37.3 per cent for Q4 2005-06. The contribution of revenues from time and material contracts has gone up to 56.4 per cent from 49.3 per cent for the previous year quarter and 51.7 per cent for March 2006 quarter.

In terms of services, contribution of enterprise solutions increased to 25.3 per cent, from 20.5 per cent for the previous year quarter, while contribution of application development and maintenance declined to 68.9 per cent from 73.1 per cent. Banking, Financial Services and Insurance (BFSI) remains the largest vertical, contributing 41.2 per cent of consolidated revenues.

TCS added 62 new clients during the quarter and the number of clients contributing over $1 million has gone up to 258. TCS now has 10 clients who contribute over $50 million each to revenues per annum.

Client concentration has declined, with the contribution of largest client to total revenues declining to 4 per cent from 4.7 per cent for the previous year quarter. Contributions of top-5 and top-10 clients to revenues have also declined during the quarter.

TCS added a net 4,698 employees during the quarter, taking the total employee strength to 71,190. Attrition rate inched up to 10.6 per cent from 8.2 per cent for the previous year''s quarter, and 9.9 per cent for the March 2006 quarter, but still remains way below industry average.

TCS increased salaries by an average of 15 per cent during the quarter. Employee utilisation rate, including trainees, has improved to 77.3 per cent during the latest reporting quarter, from 74.8 per cent for the previous year quarter, and 75.8 per cent for the March 2006 quarter.