TCS misses estimates, profit rises 4% in Q3

Revenues beat Street, but employee headcount falls.

tata, tata consultancy
The company announced a special dividend of Rs 67 per share and an interim dividend of Rs 8 per share. (IE)

Tata Consultancy Services (TCS), the country’s largest IT services company, on Monday missed profit estimates for the December quarter. The company reported a 4% quarter-on-quarter growth in its net profit to Rs 10,846 crore during October-December against the Bloomberg consensus estimate of Rs 11,064.90 crore.

Revenues, however, beat estimates of Rs 57,207.70 crore and grew 5.3% q-o-q to Rs 58,229 crore on the back of digital-led growth.

The dollar revenue for the December quarter grew 13.5% in constant currency from a year earlier to $7.08 billion, crossing the $7-billion quarterly revenue mark. This is despite Q3 being a seasonally weak quarter on account of furloughs or lower number of working days due to holidays.

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The company also announced a special dividend of Rs 67 per share and an interim dividend of Rs 8 per share.

“We are pleased with our strong growth in a seasonally weak quarter, driven by cloud services, market share gains through vendor consolidation and continued momentum in North America and the UK. The sustained strength of demand for our services is a validation of the value we provide to our clients in helping them differentiate themselves, while enhancing their competitiveness. Looking ahead, and beyond current uncertainties, our longer-term growth outlook remains robust,” said Rajesh Gopinathan, chief executive officer and managing director, TCS.

Besides missing profit estimates, the IT company also saw a fall in its employee headcount in the December quarter. TCS reported a net reduction of 2,197 employees during the quarter taking the total headcount to 613,974. On a sequential basis, the attrition rate slightly moderated from 21.5% in the September quarter, indicating the supply-side pressures are gradually easing.

However, on a trailing 12-month basis, the attrition rate increased to 21.3% from 15.3% a year ago, indicating a growing demand for tech talent in the industry.

Indian IT companies reported robust earnings during the pandemic as demand for digital soared. But the peak revenue growth is likely to be behind them and the momentum is seen softening now on account of absence of large deal wins and clients selectively postponing their technology spends. Margins are under pressure due to wage hikes, higher backfilling costs and increase in travel, visa and other discretionary expenses.

TCS’ operating margin for the third quarter contracted to 24.5% from 25% a year ago as various costs related to travel and employees have increased. On a sequential basis, however, operating margins expanded 50 basis points from 24% reported in the September quarter due to various operating efficiencies.

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“Improved productivity, currency support and abating supply-side challenges helped expand our operating margin in Q3. This gives us greater confidence in our ability to steer our profitability towards our preferred range, while continuing to invest in building newer capabilities to support our growth and market share gains,” said Samir Seksaria, chief financial officer, TCS.

In terms of verticals, growth was led by retail and consumer packaged goods (18.7%), communications & media (13.5%) and technology & services (13.6%). Manufacturing grew 12.5%, while banking, financial services and insurance (BFSI) grew 11.1% y-o-y in constant currency.

“TCS’ strategy espouses Business 4.0, which revolves around leveraging fundamental digital forces, such as cloud, intelligent, automated and agile, in any combination to drive client outcomes as the vision for its customers. However, the company’s approach is comparatively more conservative and uses an organic route to capability advancement which does have its own merits and demerits and may not work well in a rapidly changing environment,” said DD Mishra, senior director analyst, Gartner.

TCS declared its earnings after the end of trading on Monday. Ahead of its results, the shares closed up 3.35% at Rs 3,319.70 on the BSE.

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First published on: 10-01-2023 at 06:00 IST
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