TCS net profit rises 16.8% in Q1, gives wage hike to employees
TCS expects the slow demand environment to continue for some more time but remained confident that spending on technology will continue in the long run.
Tata Consultancy Services (TCS), India’s largest IT services exporter, reported a 16.8% rise in net profit for the three-month period between April and June for the current fiscal year even as it signalled that the demand continues to remain weak.
The company earned Rs 11,074 crore in net profit for the first quarter of FY24 as compared to Rs 9,478 crore in the same period a year ago. This is a marginal decline as compared sequentially to the January-March quarter of this year when the number stood at Rs 11,392 crore.
The revenue for Q1 FY24 stood at Rs 59,381 crore, which was a 12.6% year-on-year (YoY) rise, but showed flattish growth when compared to the first three months of the year.
TCS, Infosys, Wipro and other top IT firms may see dull first quarter due to macro woes
The performance of TCS for the first quarter was in line with market expectations as there was no outperformance given the present global macroeconomic environment.
“In the near term, there is going to be softness in demand as projects which have low RoI and not so critical projects are getting paused or delayed,” said TCS CEO K Krithivasan.
However, the CEO expressed confidence that there is unlikely to be any major impact in the longer run as their customers continue to spend on technology.
The company emphasised that its order book in terms of total contract value (TCV) stood at $10.2 billion.
However, the overall macroeconomic challenges from its key markets of North America and Europe weighed on the overall performance of the company. This was visible even in its operating profit margins, which stood at 23.2%—down from 24.5% recorded in the sequential previous quarter. The impact was largely from the annual wage hikes given by the company.
TCS doled out an average wage hike of 6% to its employees, with high performers getting 12-15% in Q1 FY24. However, a slow demand environment directly led to slow hiring as TCS only onboarded 523 people in the first quarter. The company's total employee strength stands at 6,15,318.
The company also emphasised that it would be honouring all the offers of employment it has made, while adding that there might be some delay in onboarding given the slower business environment. According to a media report, TCS had deferred the hiring of certain lateral employees.
The Indian IT industry continues to face severe market challenges which are unlikely to subside anytime soon. For a company like TCS, the expectation would be a return to a double-digit growth rate in US dollar terms, which is at present in the high single digits. At the end of the first quarter, the revenue growth in US dollars was 6.6% compared to 10.2% a year ago.
On the performance of the company, Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas said, “Order book continues to remain healthy, however continuing weakness in the BFS, technology and communication vertical is likely to remain an overhang and keep client sentiments muted.
Edited by Kanishk Singh