TCS net up 16.8% in Q1; margin & attrition dip amid a strong orderbook

Market leader Tata Consultancy Services on Wednesday posted a 16.8 per cent year-on-year increase in net profit for the first quarter (April-June) but witnessed flat revenue in dollar terms compared to the January-March quarter.

However, the company, India’s largest software services exporter, reported a strong deal pipeline with a sharp fall in attrition for the quarter, though project ramp-downs continued to be a drag on revenue growth.

During the first quarter ended June, TCS’ net profit was at Rs 11,074 crore, a rise of 16.8 per cent over the same period last fiscal. Its revenue was at Rs 59,381 crore, which was an increase of 12.6% per cent year-on-year.

Revenue in dollar terms stood at $7.26 billion, which was higher by 7 per cent in constant currency terms but remained flat over the previous quarter.

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“Enterprises are reprioritising their technology spend. Those projects which are not business critical or can give immediate RoI (return on investment), those are seeing delays. Clients are confident about the long-term but are uncertain about the short-term. Demand recovery will depend on the macroeconomic environment,” K Krithivasan, CEO & MD of TCS said in the post earnings press conference.

In the April-June quarter, which is traditionally the best quarter for the Indian IT industry, TCS reported a robust order book of $10.2 billion with around $5 billion worth of deals coming from the US. The company, however, indicated that the project ramp downs were holding back revenue accretion from large deals.

The company also said that achieving double-digit revenue growth numbers in FY24 seems to be a tall order given the current environment. “It’s a tall order. But we are all focussed on maximising growth,” N Ganapathy Subramaniam, COO of TCS said.

TCS’s operating margin for the first quarter stood at 23.2%, a fall of 130 basis points sequentially, primarily on the back of annual salary hikes.

"TCS reported largely in-line numbers. Despite wage hike, margin didn't fall much. Also, all verticals except hi-tech reported positive growth. The order book improved versus last quarter, which augurs well for revenue growth in coming quarters," Pareekh Jain, an IT industry analyst and Founder of Pareekh Consulting told DH.

Among TCS’ verticals, the life sciences & healthcare vertical grew 10%, while the manufacturing vertical saw a growth of 9.4% per cent BFSI vertical saw a growth of 3% during this period.

With growth moderation, TCS witnessed a fall in attrition, to 17.8 per cent in Q1 compared with 20.1 per cent the quarter before.

“We are expecting our attrition to come down to pre-pandemic levels during the second half of this fiscal year,” Milind Lakkad, chief human resource officer at TCS said. The company said that it would add 40,000 freshers this fiscal year though onboarding would depend on demand for the project.