IT giant Tata Consultancy Services’ third quarter net profit rose a tad by 2 per cent to ₹11,058 crore compared with ₹10,846 crore in the corresponding previous period. However, on a sequential basis, the profit was down 2.5 per cent, from ₹11,342 crore in Q2.
The company declared a third interim dividend of ₹9 and a special dividend of ₹18 per equity share of ₹1 each.
Cautious sentiment
Even as the US Federal Reserve is expected to hold interest rates steady, the North American market continued to be a significant pain point of the firm. North America, which constitutes nearly half of TCS business, de-grew by 3 per cent year-on-year this quarter. In the previous quarter, the North America market had grown by 0.1 per cent.
The BFSI vertical also saw a decline of 3 per cent y-o-y in the December quarter; the dip was 0.5 per cent in the last quarter .
TCS CEO K Krithivasan said there has been no fundamental change in market sentiments, despite the US Federal Reserve’s decision on interest rates.
“The optimism around interest rates has not resulted in a reduction of the uncertainty that we see in decision-making. The sentiment has remained the same, so I don’t think we are not ready to say that it will recover by Q4,” he said. Similarly, the decline in the BFSI vertical was attributed furloughs in Europe as well as two-large clients completing their projects. The BFSI sector is expected to bounce back in the mid- to long-term.
Revenue from operations grew 4 per cent y-o-y to ₹60,583 crore in Q3 (₹58,228 crore). Revenue grew 1.5 per cent sequentially from ₹59,692 crore in Q2. Operating margins rose to 25 per cent from 24.3 per cent in Q2.
According to Samir Seksaria, Chief Financial Officer, this growth came despite headwinds from higher third-party costs. Growth in operating margins excludes the $125-million legal claim by Epic Systems, which impacted on margins.
The order book stood at around $8.1 billion for the quarter. The management added that there were no mega deal wins, “I am comfortable with the order book, the growth was largely broad based, and we were able to achieve it without mega deals,” N Ganapathy Subramaniam, COO,said.
Krithivasan added that four generative AI projects evolved from proof of concept to production, but did not have a tangible impact on revenues. Discretionary spending continues to be delayed, and all the top four verticals for TCS saw moderation in growth.
Headcount drops
Attrition in the LTM IT services continues to abate, at around 13.1 per cent in Q3. Total headcount decreased yet again, to 6,03,305. This trend is expected to continue for the next two quarters.
Analysts characterised this quarter as one of tepid growth, ‘‘In Q3, TCS showed tepid revenue growth on subdued expansion due to ongoing challenges in discretionary spending and furloughs,” said Dhruv Mudaraddi, Research Analyst, Stoxbox.
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