Sluggish US mkt hits TCS’ Q4 bottom line

- Attrition is inching down, can see pre-pandemic level in H2

- Margin pressure to remain owing to volatility

- Operating margins at 24.5% Q4 against 24.1% a year ago

- BFSI vertical witnesses widespread weak sentiment among players

- It’s over 5 lakh payrolls and added a net of 821 employees in Q4

- TCS stock closed Rs27.85 or 0.87% higher at Rs3,242.10 on BSE

Bengaluru: India’s largest pvt sector employer and IT major Tata Consultancy Services (TCS) kick started the earnings season for the IT sector on Wednesday with a mixed set of numbers.

TCS reported a 14.8 per cent year-on-year (YoY) increase in consolidated net profit at Rs11,436 crore for the fourth quarter ended March 2023. Consolidated revenue from operations came in at Rs59,162 crore, up 16.9 per cent from a year earlier.

Revenue in dollar term for the quarter was at $7.2 billion, a rise of 10.7 per cent in constant currency term. For the whole financial year (FY23), revenue was at $27.93 billion, which was a growth of 13.7 per cent year-on-year basis. For the quarter, operating margin remained flat sequentially at 24.5 per cent. The company announced a final dividend Rs 24 for shareholders.

The company continued to report strong deal pipeline with fourth quarter TCV (total contract value) coming at $10 billion, which included one mega deal. For FY23, total TCV came at $34.1 billion.

“We ended Q4 on a strong note given the macroeconomic environment. As far as North America was concerned, things didn’t improve in Q4 as expected earlier. So, the weakness came from the US. Demand environment remains the same as earlier. We are carefully watching the BFSI vertical and expect immediate weakness,” Rajesh Gopinathan, the outgoing Chief Executive Officer and Managing Director of TCS said.

Gopinathan, who will hand over the charge of CEO from June 1 to the CEO designate K Krithivasan, said that TCS is tightening operations to deal with the weakness seen in the US market.

Among the verticals, the most important BFSI vertical grew 9.1 per cent y-o-y basis, while retail & CPG grew 13 per cent. Lifesciences and healthcare was up 12.3 per cent, while manufacturing grew 9.1 per cent. Technology and services was up 9.2 per cent over the same period of previous year.

“Sentiment in the BFSI vertical remains weak. But we don’t see any banking crisis. There is no comparison with 2007-2008 crisis. So, we will watch out how this plays out in coming quarters,” K Krithivasan, CEO designate said.

Geography-wise, North America saw a growth rate of 9.6 per cent, while continental Europe grew 8.4 per cent. But, UK market continued perform well with 17 per cent year-on-year basis.

“We don’t see any cancellation of projects, but we definitely see deferment of projects. At the same time, cost optimisation projects are rising. So, it will be difficult to provide a glide path for margins,” said Samir Seksaria, Chief Financial Officer of TCS.

During the fourth quarter, net addition of TCS remained tepid at 821 employees with a closing employee count of 614,795 in FY23. Attrition continued to decline with the same coming at 20.1 per cent in Q4.

“We see attrition coming down further and we hope to see pre-pandemic level of attrition in the second half of this year. As far as new hiring is concerned, we have already rolled out offer letters to 46,000 freshers so far for joining in FY24,” said Milind Lakkad, Chief HR Officer of TCS.

We ended Q4 on a strong note given the macroeconomic environment. As far as North America was concerned, things didn’t improve in Q4 as expected earlier. So, the weakness came from the US. Demand environment remains the same as earlier

- Rajesh Gopinathan, outgoing CEO & MD, TCS