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Tata Consultancy Services on Friday reported a subdued performance for the first quarter of this fiscal (Q1 FY23) with a 5.4 per cent jump in profit to ₹9,519 crore compared to ₹9,031 crore reported in the same period last year. The profit slumped by 4.4 per cent on a sequential basis from ₹9,959 crore in Q4 FY22.
Revenue from operations touched ₹52,758 crore for Q1, up 16.17 per cent from ₹45,411 crore reported in the year-ago period. Quarter-on-quarter, revenues were up 3.9 per cent from ₹51,572 crore in the last quarter.
Order book softening
The company signed a total contract value worth $8.2 billion as against $11.3 billion in the previous quarter. The order book is lower because TCS had bagged two large deals in the fourth quarter of last fiscal. As per analysts, $8.2 billion is the range that the company has been signing deals consistently across quarters.
Commenting on the issue of softening the order book, especially at the back of inflation and a looming recession, Rajesh Gopinathan, MD & CEO, TCS, said, “We are in close communication with our customers, and are seeing steady demand from immediate customers in the short and medium term. We are consistently polling to see if there are any early indications of softening, however, no indication is available. While there is increasing discussion about the recession among our senior leadership, we do not see an immediate footprint.”
Attrition on the rise
The company reported an increased attrition rate of 19.7 per cent in Q1 in the LTM IT services, up from 17.4 per cent reported in the previous quarter. This, even as the employee strength crossed a milestone of 600,000 this quarter. TCS partly attribute the rise to seasonal effects such as employees leaving for higher studies, however, salary expenses have had an effect on margins, too. The company’s operating margins dipped to 23.1 per cent this quarter (25 per cent).
“It has been a challenging quarter from a cost management perspective. Our Q1 operating margin of 23.1 per cent reflects the impact of our annual salary increase, the elevated cost of managing the talent churn and gradually normalising travel expenses. However, our longer-term cost structures and relative competitiveness remain unchanged, and position us well to continue on our profitable growth trajectory,” said Samir Seksaria, Chief Financial Officer, TCS.
Analyst view
Notwithstanding the muted quarter, analysts said the company is likely to be one of the key beneficiaries of the medium-term uptrend in technology spending.
Mitul Shah, Head of Research at Reliance Securities, said, “We expect TCS to gain market share on the back of vendor consolidation and captive monetisation efforts. However, moderation in EBIT margins and lower order book would reduce the pace of earnings growth going ahead and may lead to a downward revision to the valuation multiple. We are positive on the structural IT story and remain constructive on TCS being a key beneficiary of IT up cycle.”
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