Tata Consultancy Services (TCS) declared its financial results for the third quarter of fiscal year 2024 ending December, reporting continued revenue growth despite macroeconomic headwinds facing the IT sector. Some key highlights:
- Revenue rose 3% year-on-year in constant currency terms to ₹50,591 crore, supported by strong order booking over the last year. Growth was dampened slightly by client budget cuts and furloughs in Q3.
- Net profit increased 5.4% to ₹10,422 crore compared to ₹9,901 crore in the corresponding period last year, with margins expanding 30 basis points.
- Revenue in US dollar terms grew 2.7%, slower than previous but still outpacing larger rivals. Operating margins improved to 25% from 24.7% a year ago, reflecting good cost optimization.
- TCS signed $8.2 billion worth of total contract value in the quarter, notably with firms in healthcare, retail and technology verticals. Large deals rose 17% and continue driving future revenue visibility.
- The company said furloughs slowed discretionary spending but demand remains resilient overall, supported by long-term digital transformations. No immediate signs of project cancellations or reduction.
- Management retained revenue guidance of double-digit growth for FY24 in constant currency but expects margins to contract slightly as wage hikes resume next quarter and supply challenges linger.
- In a post-earnings call, CEO Rajesh Gopinathan pointed to strong pipeline and shift to “never normal” operating models among clients. He expressed confidence in dealing with macro volatility through operating leverage and client mining.
- However, the demand outlook in Europe remains uncertain as the regional economy grapples high inflation and potential recession risks. Currency fluctuations too will impact reported growth rates.
While demand holds up across verticals, banking and retail segments saw relatively slower growth in Q3. Discretionary spending declines amongst these clients impacted some transformational projects that require large upfront investments.
Nonetheless, as CFO Samir Seksaria pointed out, this is a temporary setback and demand drivers are intact in the long-run given structural digital shifts. Over 80% of TCS’ portfolio today is focused on such multi-year initiatives rather than one-off projects.
The company’s ability to consistently acquire large transformational deals is quite encouraging. Such programs necessitate scaling of existing teams as well as hiring of new talent across client sites globally.
Despite macro headwinds, high attrition remains a constraint for the industry and TCS’ IT services attrition rate inched up marginally to 21.5% in Q3 versus 19.7% last year. This will bear close watch given implications for both margins and growth capacity going forward.
In summary, Q3 earnings demonstrate TCS’ ability to deliver steady performance despite challenging times – a testament to its scale, diversification and prudent operating model. While macro headwinds persist, the fundamentals remain solid underpinning continued growth and shareholder returns over the medium term.
