TCS beats estimates with 17% upswing in Q1 net
India’s largest software exporter sees volatile phase for Indian IT as North American, BFSI space witnessing slower growth
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Bengaluru Market leader Tata Consultancy Services on Wednesday posted a subdued set of numbers for the first quarter with revenue growth remaining flat, while margins came under pressure owing to wage hike. However, the company reported a strong deal pipeline with sharp fall in attrition for the quarter, indicating a better time ahead for the Tata Group company.
During the first quarter ended June, TCS’ net profit was at Rs 11,074 crore, a rise of 16.8 per cent over the same period last fiscal. Its revenue was at Rs 59,381 crore, which was an increase of 12.6 per cent over the same period a year ago.
Revenue in dollar term stood at $7.26 billion, which was higher by 7 per cent in constant currency terms but remained flat over the previous quarter.
“Enterprises are reprioritising their technology spend. Those projects which are not business critical or can give immediate RoI (return on investment), those are seeing delays. Clients are confident about the long-term but are uncertain about the short-term. Demand recovery will depend on the macroeconomic environment,” K Krithivasan, CEO & MD, TCS said in the post earnings press conference.
“As far as vertical is concerned, in the BFSI vertical, while banking is doing all right, we see demand moderation in mortgage and insurance. After investing heavily in 5G, telecom players are slowing down technology spend,” he added.
In the April-June quarter, which is traditionally the best quarter for the Indian IT industry, TCS reported a robust order book of $10.2 billion with around $5 billion worth deals coming from the US. The company, however, indicated that the project ramp downs were holding back revenue accretion from large deals.
“After release one is finished in a project, the release two order should come. But, this is getting delayed in projects. That is the reason that despite high TCV (total contract value), it is not reflected in revenues,” said Krithivasan.
The company also said that achieving double digit revenue growth numbers in FY24 seems to be a tall order given the current environment. “It’s a tall order. But we are all focussed on maximising the growth,” N Ganapathy Subramaniam, COO of TCS said.
Company’s operating margin for the first quarter stood at 23.2 per cent, a fall of 130 basis points from the previous quarter. “We have gone ahead and rolled out our annual salary increase with effect from April 1st. Our operating margin of 23.2 per cent reflects the 200 bps impact of this hike, offset through improved efficiencies. At the same time, we continue to make the investments needed to power our future growth, including expansion of our delivery and research infrastructure.” Chief Financial Officer of TCS, Samir Seksaria said.
In geographical term, UK continued to be the geography with high growth rate as the company reported 16.1 per cent rise in revenue in Q1 on year-on-year basis. North America reported a growth of 4.6 per cent during this period.
With growth moderation, TCS witnessed a fall in attrition. Attrition levels of India’s largest IT services company dipped to 17.8 per cent on the last-twelve-months basis, down from last quarter’s 20.1 per cent. TCS added TCS adds 523 employees during the quarter to take the total headcount to 6,15,318 by the end of June quarter.
“We are expecting our attrition to come down to pre-pandemic levels during the second half of this fiscal year,” Milind Lakkad, Chief HR Officer at TCS said.
