IT major Tata Consultancy Services’ profit rose by 16.8 per cent to ₹11,120 crore in the first quarter of FY24, compared with ₹9,519 crore it reported in the corresponding period last year. However, on a sequential basis, the profit was down 2.7 per cent, from ₹11,436 crore in Q4 FY23.
The company also declared an interim dividend of ₹9 per equity share of ₹1 each.
Even as the company beat market estimates, macroeconomic uncertainties continue to bog the IT major, as TCS CEO K Krithivasan admitted to the fact that softness in geographies like North America continues to remain in this quarter as well. The North American market, that usually sees growth rates in high teens, reported only 4.6 per cent y-o-y growth in Q1.
BFSI underperforms
The company’s revenue from operations grew 12.5 per cent y-o-y to ₹59,381 crore in Q1 FY24 compared with ₹52,758 crore it reported in Q1 FY23. Operating margins shrank to 23.2 per cent from 24.5 per cent reported in Q4 FY23. According to Samir Seksaria, Chief Financial Officer, it is hard to know at this point whether the IT giant will exit this financial year with an aspirational target of 25 per cent for operating margins.
BFSI, which contributes to nearly half of TCS’ revenues, posted a subdued growth rate of 3 per cent. The executives maintain that the banking sector continues to show a strong pipeline, even as the insurance and the mortgage sectors contributed the most to its softness. The United Kingdom region, however, posted 16.1 per cent growth.
The order book stood at around $10.2 billion for the quarter.
The management remained non-committal on whether or not macroeconomic challenges will diminish in the second half of FY24. However, they noted that clients are delaying projects that have low return on investments or are non critical to their businesses, and this is adding to the softness in revenue growth.
Hiring trend
Attrition in the LTM IT services continues to abate, at around 17.8 per cent in Q1, from 20.1 per cent reported in the previous quarter. The total headcount for the company stands at around 615,318. The hiring trend has been worrying as the company added only 523 employees to its total headcount during the period, especially given that the first quarter sees the largest addition in workforce for the IT sector.
The management also remained silent on their recent decision to delay onboarding of lateral hires by three months. Milind Lakkad, Chief Human Resources Officer, however reassured that the company will honour all the offers.
There were also updates on generative AI during the earnings call. Krithivasan added that the company has around 50 research projects and pilot studies related to generative AI, with around 100 projects in the pipeline for the same. However, the management acknowledged that enterprises continue to show caution while incorporating generative AI into their service roster.
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Published on July 12, 2023
