Tcs kicks off earnings season – Net profit tops street estimates as worsening attrition bites into the margin


Tata Consultancy Services (TCS) kicked off the corporate earnings season on Friday by reporting a net profit of Rs 9,478 crore for the April-June period, below Street estimates. Net profit fell 4.5% from the prior quarter as labor costs and high attrition continued to eat into its margin despite strong demand.

India’s largest exporter of software services reported revenue of Rs 52,758 crore for the three-month period, up 4.3% on a quarterly basis.

Dollar revenue rose 1.3% sequentially to $6,780 million, according to a regulatory filing. analysts from a CNBC-TV18 survey had estimated its quarterly revenue at $6,812 million.

Tcs kicks off earnings season - Net profit tops street estimates as worsening attrition bites into the margin

Revenue growth in constant currency terms was 3.5% in the quarter, versus analysts’ expectation of 3.5-4%.

Tcs kicks off earnings season - Net profit tops street estimates as worsening attrition bites into the margin

“We are starting the new fiscal year on a high note, with overall growth and strong agreements in all of our segments. Pipeline velocity and deal closures continue to be strong, but we remain vigilant given macro-level uncertainties. Our new organizational structure has settled in well, bringing us closer to our customers and making us more agile in a dynamic environment,” said Rajesh Gopinathan, CEO and Managing Director of TCS.

TCS added nine customers to the over $100 million category during the quarter and 19 to the over $50 million category.

Gopinath also said the company remains confident in the resilience of tech spending and the secular tailwinds driving its growth.

TCS’ attrition rate in the IT services unit worsened to 19.7% in the quarter ended June, from 17.4% in the previous three months. The company added 14,136 employees during the quarter, boosting its workforce past the 6 lakh milestone.

Margin – or the difference between revenue and expense – came in at 23.1%, 186 basis points from the previous quarter, raising concerns about worsening attrition.

TCS Chief Financial Officer Samir Seksaria said the quarter was difficult from a cost management perspective.

“Our first quarter operating margin reflects the impact of our annual salary increase, the high cost of managing talent turnover and the gradual normalization of travel expenses. However, our longer-term cost structures and our relative competitiveness remain unchanged, and position us well to continue on our path of profitable growth,” he said.

Tcs kicks off earnings season - Net profit tops street estimates as worsening attrition bites into the margin

Market expert Prakash Diwan said there was clearly a lack on the margin front. Revenue growth in constant currencies was at the lower end of expectations, which is disappointing, he said. CNBC-TV18.

“There was always this underlying glimmer of hope that something positive would happen on attrition and it might not be as bad as it looks. But in terms of impact on the costs, this seems to be quite serious. This will continue to put pressure on margins even in the future,” he added.

The TCS board has declared an interim dividend of Rs 8 per share.

Shares of TCS shed intraday gains in a choppy session ahead of the IT major’s quarterly earnings release.

Tcs kicks off earnings season - Net profit tops street estimates as worsening attrition bites into the margin

Diwan expects a slight negative reaction to the company’s quarterly performance on Dalal Street on Monday due to the lack of margin.

(Edited by : Sandep Singh)

First post: STI


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