India’s largest IT services company TCS reported an 11 per cent rise in December quarter net profit to ₹10,846 crore, restricted by a narrowing of profit margins, but sounded sanguine about the deal pipeline.
In a multi-year first, the company reported a marginal decline in its employee base, which had been steadily growing for a long time, but made it clear that this was not due to the demand environment, and said it will hire up to 1.50 lakh people next fiscal.
The Tata group company’s board also declared a dividend payout of ₹75 per share, including a special dividend of ₹67 per share, which will result in an outflow of ₹33,000 crore in cash.
Its overall revenue rose 19.1 per cent to ₹58,229 crore for the reporting quarter, but it was a 0.5 per cent narrowing of the operating profit margin to 24.5 per cent that limited the overall profit growth.
Its chief executive and managing director Rajesh Gopinathan told reporters that it is more confident about the North American and British operations, which account for two-thirds of its revenues, but there are short-term uncertainties, and it is Europe, which needs closer monitoring as geopolitical tensions restrict clients from making IT spends.
Chief operating officer N Ganapathy Subramaniam said the deal momentum and pipeline are looking good, and the overall situation on technology spending seems to be intact even in this environment.
On the new deals front, the company reported a total contract value of USD 7.9 billion for the quarter, which Gopinathan said is in the mid-range of the target of USD 7-9 billion.
Gopinathan attributed the revenue growth during the quarter to cloud spending by clients and made it clear that its clients are not affected by the overall trend of relook by companies on hyperscalers.
He also said that the company has gained market shares through vendor consolidation but refused to quantify the same or share details about the competing companies, which it had left behind to win business.
Chief financial officer Samir Seksaria said third-party costs and increasing costs arising out of the normalcy of operations impacted the profit margins and added that it will exit FY23 with an operating profit margin of 25 per cent, which is at par with what it ended FY22.
He said the company has the required levers to expand the margin band, including the easing of the supply side challenges, which has resulted in higher payouts to hire or retain staff in the last few quarters, and also the pricing of deals.
Its overall staffing declined by 2,197 people to 6.13 lakh employees, making it the first quarterly decline in many years. The decline was a result of the overall number of people leaving the company being higher than the number of new hires from campuses and laterals, its chief human resources officer Milind Lakkad said.
It has hired 42,000 freshers in the first three-quarters of the fiscal, and may hire a few thousand more in the last quarter, he said, adding that it will continue the trend of hiring 40,000 freshers in FY24, while Gopinathan said it will hire 1.25-1.50 lakh people in FY24 as well.
Lakkad said the dip in overall staffing is due to investments done in FY22 through higher hiring and is not linked to the demand environment at all. It should be seen as a case where staff is being used more efficiently, he said.
Seasonal furloughs, which typically dominate the third quarter, had some impact on the business but the same was in line with expectations, Subramaniam said, adding that the Asia Pacific business contributed the most.
Overall, the banking, financial services and insurance sector, which is the largest industry vertical for the company, has grown well and the company has no big worry in the segment even though insurance has shown some softness, Subramaniam said, adding that USD 2.5 billion in TCV came from the sector.
Indian banks are piloting metaverse solutions but we are far away from any of it being implemented at the customer end, the COO said, adding that moving to the cloud, analytics and data mining and integration with services offered by startups dominate the technology efforts for local lenders.
“TCS has shown flexibility in aligning its deliveries towards the expected business outcome of the customer and has shown commitment in driving value for money. This has helped it to drive a comparatively better industry benchmark in terms of fiscal performance,” analysts at Gartner, a research firm, said.
The company scrip closed 3.35 per cent up at ₹3,319.70 apiece on the BSE on Monday ahead of the results against gains of 1.41 per cent on the benchmark.