IT major Tata Consultancy Services’ profit grew 14.7 per cent to ₹11,392 crore in the final quarter of FY23, versus ₹9,926 crore reported in the same period last year. On a sequential basis, the profit was up by only 4.7 per cent, from ₹10,883 crore reported in the third quarter of FY23.

The company announced a final dividend of ₹24 per equity share of ₹1 each.

TCS leadership admitted that growth for the quarter was weaker than anticipated with uncertainties in the horizon.

Rajesh Gopinathan, outgoing CEO of TCS, said, “This quarter has definitely come in weaker than we originally anticipated, and primarily coming out of North America.”

Gopinathan said that while North America had slowed last quarter, there was an expectation that this was a result of the cautionary stance taken by companies in North America. “This was a result of the lingering macroeconomic concerns and the volatility you saw in the banking system there,” said Gopinathan. 

Revenue from operations grew year-on-year by 16.9 per cent to ₹59,162 crore in Q2 FY23 against ₹50,591 crore reported during the corresponding period last year.

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Operating margins flat

The IT major saw stable operational margins, reporting a margin of 24.5 per cent for Q4 FY23, the same as the previous quarter. TCS has not reached its target margin band of 25 per cent which the IT company was consistently reporting till Q4 FY22.

Samir Sheksaria, CFO of TCS, said that macroenvironment pressures and increasingly negative client sentiments in February and March reflected adversely on the operating margins. However, cost reduction measures on the operations side have allowed TCS to keep stable margins at a sequential level. 

Despite of troubles spelled in the BFSI space due to the Silicon Valley Bank and the Credit Suisse collapse, the company reported an order book of $10 billion for Q4 FY23. In Q3FY23, the company had an order book of $7.8 billion. As per the leadership, the IT company had an “all time high” number of large deals. In Q4FY23, TCS’ BFSI business grew by 9.1 per cent, retail and CPG grew by 13 per cent and the life sciences and health care business grew by 12.3 per cent. 

K Krithivasan, CEO designate, further added that the impact of the financial crisis was at a sentiment level rather than structural level – where some clients preferred to defer their deals by a quarter or two, to be ready for any eventuality.

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“Actually if you look at many of the large banks, who are our customers, they are benefitting here. Deposits are increasing after the banking crisis, and they will be at a better place going forward,” Krithivasan said about TCS’ banking clients in North America.

“Even in North America, Canada is doing very well,” Krithvasan added, stating the UK and European markets are also doing well in the banking space.  Krithivasan will be taking over as the CEO of TCS on June 1. 

Attrition rate

Attrition in the LTM IT services continues to abate, at around 20.1 per cent this quarter, from 21.3 per cent reported in the previous quarter. The total headcount for the company is at around 614,795 at the end of FY23. 

Despite management commentary of overall resiliency, analyst note that TCS’ quarterly results have been muted. 

Urmi Shah, Research Analyst, SAMCO Securities, said, “TCS reported a muted quarter, with a mixed bag of numbers. The company has not managed to sustain its margins, though, for FY23, we see a steep decline of ~200 bps. Growth has been subdued for the quarter with the BFSI segment reporting single-digit growth and ending the year lower compared to the guidance.”

Shad added, “However, the order book of $10 billion is at an all-time high, indicating optimism about growth in the IT sector. With the substantial decline in attrition rate, operational costs optimised and the order book remaining strong, it remains to see how FY24 paves out.”

Mitul Shah Head of Research Reliance Securities, added, “We believe that IT Services would not remain immune to worsening global macros in terms of rising inflation, economic slowdown, currency headwinds and likely cut on IT spending in FY24. Revenue growth would taper down to single digit in FY24E, while tapering revenue growth, limited margin expansion, lower earnings growth, lower pricing power ahead and delay in execution of deals would lead to valuation multiple contraction close to its historical averages.”