TCS Q3 net grows 11% to Rs 10,846 crore, crosses $7-bn quarterly revenue milestone
The company also saw a reduction in its total workforce for the first time in ten quarters as it slowed down fresh hiring.
India’s largest software exporter said revenue came in at ₹58,229 crore, up 19.1% year on year, led by demand for cloud solutions, surpassing analyst estimates.
The company declared an interim dividend of ₹8 and a special dividend of ₹67 per equity share.
Speaking to reporters, TCS chief executive officer and managing director Rajesh Gopinathan said the company sees no “structural problem with the US and the (slowdown) is more a transient one”.
“We are quite positive about the demand there,” he said while cautioning that “Europe has a problem (in terms of demand) and it is a more difficult one to call. Something needs to happen for it to turn around.”
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Fall in headcount
The TCS CEO said that he expects 2023 “to be more balanced in terms of the nature of (overall) demand”.
The company’s net profit for the October-December quarter stood at Rs 10,846 crore compared with Rs 9,769 crore a year back. On a sequential basis, profit grew by 3.9% and revenue by 5.2%.
In dollar terms, the company crossed the milestone of $7 billion quarterly revenue.
Analysts are of the view that IT services will not remain immune to worsening global macroeconomic trends like rising inflation, economic slowdown, currency headwinds and likely cut in technology spending.
“Management commentary on demand environment looks hazy for the short-to-medium term owing to the uncertain global environment,” said Sanjeev Hota, head of research, Sharekhan by BNP Paribas.
On Monday, TCS shares closed 3.3% higher at Rs 3,319.7 on the BSE. Results were declared after markets closed for the day.
Company executives said the drop in its overall headcount, by 2,197 sequentially, was on account of aggressive hiring over the last fiscal and is not a reflection of overall demand receding. In the previous quarter, TCS had recorded a net addition of 9,840 employees.
Voluntary attrition for the quarter stood at 21.3% compared with 21.5% last quarter and the company said further improvements in the metric will be seen going forward. This comes at a time when the company had said that high cost of talent was weighing down on margins over the past four quarters.
The company last reported a dip in headcount by almost 4,800 employees during the first quarter of FY21, at the peak of the Covid-19 pandemic. “Our posture is positive and we are not pulling people off the field. We are fully engaged and present. From a talent capacity perspective, we overinvested last year and benefited from it,” said Gopinathan.
The company boarded around 7,000 freshers during the quarter compared with 20,000 in the previous period.
The company expects to maintain its rate of fresher hiring at 40,000 for the 2023-24 fiscal year.
During the post earnings call, Milind Lakkad, chief HR officer at TCS, added that the software major’s move to hire significant numbers of fresh talent last year as well as the first half of this year was paying off.
“All of this resulted in negative headcount but it does not indicate anything about the demand. Demand is high and we are just operating it efficiently,” he said in response to the question on drop in overall headcount.
Lower utilisation
The company’s operating margins expanded 50 basis points (bps) sequentially to 24.5%, a tad above analyst estimates led by higher efficiency and rupee depreciation during the quarter. The margin, however, contracted on a year-on-year basis by 50 bps in a quarter where overall employee utilisation dropped due to it being the holiday season.
“Different markets have behaved differently during the quarter. North America is vibrant and the overall economic stance and customer perspective continues to be supportive (in the US),” according to Gopinathan.
However, he noted that despite a challenging environment in the UK, TCS’ “solutions are finding a lot of resonance with customers and (it) is gaining market share” there.
Pointing to client decision-making in Europe having been hurt by the ongoing geopolitical challenges, he said it requires close watching.
Deal wins drop
The company reported total contract value of deal wins at $7.8 billion, compared with $8.1 billion worth of deals reported last quarter. The company had previously guided towards a quarterly deal value of between $7 billion and $9 billion.
Among its major markets, North America and the UK led with 15.4% growth, continental Europe grew 9.7%. In emerging markets, Latin America grew 14.6%, India grew 9.1%, Asia Pacific grew 9.5% and Middle East & Africa grew 8.6%.
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