TCS Q2 net up 8.4 pc to Rs 10,431 cr; flags challenging environment

Mumbai: Largest IT services exporter TCS on Monday reported an 8.4 per cent growth in its September quarter net profit at Rs 10,431 crore, crimped by a dent on margins.

The Tata group company, however, said the operating environment is “challenging” and warrants “vigilance”, even though the headwinds posed by factors like recession in its biggest market US, rising inflation around the world and currency volatilities are yet to materialise into its order pipeline.

Its Chief Executive Officer and Managing Director Rajesh Gopinathan said it is difficult to say if the company will be completely insulated from the events as they unfold, and made it clear that it will try to minimise the risks as much as possible.

The reporting quarter saw an 18 per cent jump in revenues to Rs 55,309 crore as against Rs 46,867 crore in the year-ago period, but it was a 1.60 percentage points narrowing in the operating margin to 24 per cent which crimped the profit growth.

Its Chief Financial Officer Samir Seksaria said an increase in human resource consultant fees led to a one percentage point dent on the margins, while a rise in discretionary spending on aspects like travel and marketing led to a further impact. The margins benefited from aspects like currency movements, which finally blended into a 1.60 percentage points impact.

He said the immediate target will be to take the operating profit margin to 25 per cent by the fourth quarter of the fiscal by focusing on improving utilisation and upping the realisations, and then touch the aspirational band of 26-28 per cent.

The company’s Chief Operating Officer (COO) N Ganapathy Subramaniam said the overall demand environment for its services is good, but there are a few spots of softness like Europe where the focus is on grappling with the oncoming winter amid worries over energy supplies due to the war in Ukraine, and also the insurance segment.

He said there is a softness in decision making as well and clients are generally keeping off longer term deals which may be triggered by anxieties surrounding the geopolitical events and challenges on the macroeconomic front.

The company reported a total contract value of USD 8.1 billion with the largest deal being around USD 400 million, Gopinathan said. Subramaniam said the USD 2 billion very large deals are not coming at all in the market at present.

The COO said the pricing situation is stable and denied there being any pressure due to aspects like rupee depreciation, wherein clients would negotiate for a lower price.

The company added 9,840 employees on a net basis during the quarter to bring its overall workforce to 6.16 lakh. The attrition stood at 21.5 per cent.

The company’s Chief Human Resources Officer Milind Lakkad said it will take a year for the attrition to come down to the aspired level of 20 per cent.

He further said the company has already hired 35,000 freshers in the first half of the financial year, and has a pipeline of up to 12,000 more hires which will ensure that it exceeds the target of hiring 40,000 people from campuses. It has 5 lakh aspirants vying for getting hired in FY24, even though a number is yet to be decided upon, he added.

Gopinathan said the supply side concerns which had impacted the industry over the last few years are over now.

Domestic brokerage Emkay said the revenue and margins came in line with its expectations, while analysts at its peer Reliance Securities said IT services would not remain immune to worsening global macros in terms of rising inflation, economic slowdown, currency headwinds and likely cut on spending.

The company’s board has announced a dividend of Rs 8 per share. The payment date is November 7.

The TCS scrip closed 1.84 per cent up at Rs 3,121.20 apiece on the BSE as against a 0.34 per cent correction in the benchmark Sensex. The results were announced post market hours