TCS posts over Rs 11,300 crore profit in March quarter

A private security guard stands at the exit gate of the headquarters of Tata Consultancy Services (TCS) in Mumbai, India, Oct. 13, 2016. Reuters/Shailesh Andrade/File Photo

Mumbai: The country's largest IT services exporter TCS on Wednesday reported a 14.8 per cent increase in March quarter net profit at Rs 11,392 crore but flagged worries from its key market of North America.

Events like the fall of SVB and fears of a contagion have impacted client sentiments in North America and the banking, financial services and insurance sector in particular, leading to clients deferring spends, the Tata Group company said.

When compared to the year-ago period, the revenues jumped 16.9 per cent to Rs 59,162 crore.

Its outgoing CEO Rajesh Gopinathan conceded that the 0.6 per cent growth in the top line over the December quarter has been "weaker than anticipated" because of the setbacks in North America.

For FY23, the company reported a 17.6 per cent growth in revenues at Rs 2.25 lakh crore while the profit after tax was 10 per cent higher at Rs 42,147 crore.

K Krithivasan, the CEO-designate who presently heads the BFSI vertical which contributes a third of the overall revenues, said there has been a "greater rush" among clients to conserve cash and delay spends.

Domestic brokerage Axis Securities said the results are below its expectations while Reliance Securities said Indian IT will not be immune to the worsening global macro environment having headwinds like rising inflation, economic slowdown and currency volatilities.

The company's Chief Operating Officer N Ganapathy Subramaniam said there are no big budget cuts but clients have adopted a strategy of "spending wisely" due to the impact on the sentiment, and are deferring spends.

The company reported a total contract value of USD 10 billion that includes a US$ 750 million mega-deal, and will maintain its guidance of having the number between US$ 7-9 billion every quarter, he said.

Gopinathan said the "negative" sentiment has led to a situation where discretionary spends are being put on hold by clients, and added that it is "wait and watch" in the immediate near-term for them.

There have been no project cancellations and the structural story of Indian IT is intact, he added.

According to Gopinathan, the company has taken a lot of measures to protect its performance in North America like going down on lateral hires and limiting the sub-contracting costs.

Krithivasan, who will be taking over from June 1, said many banks are better placed now than when they were before the onset of the current episode of the crisis, and added that the ongoing events cannot be compared to the global financial crisis of 2008 post-Lehman breakdown.

The company management was, however, unsure about how long the negative sentiments would continue to prevail and keep impacting the business.

The company missed its 26-28 per cent operating profit margin aspiration as the key number came at 24.5 per cent for the March quarter.

TCS Chief Financial Officer Samir Seksaria said the company will continue to chase the aspirational margin band even though there can be challenges like the impact of salary hikes.

Milind Lakkad, the Chief Human Resources Officer, said the company is maintaining the 40,000 freshers-hire target for FY24 and has already made 46,000 offers. The salary revisions will be like usual, and the top performers will get a 12-15 per cent hike, he added.

During the reporting quarter, the company turned back to its historical trend by becoming a net hirer and added 821 employees to take the overall strength to 6.15 lakh people.

Lakkad also said the company will be paying the full variable pay to its associates for the fiscal.

Subramaniam said generative artificial intelligence platforms like ChatGPT feature in every conversation with customers and the company has already started building tools on the same which are delivering revenues as well.

At a time when its peers are resorting to a lot of moves like lowering the salaries of freshers before they are taken on board or asking for additional skill sets, Lakkad said TCS is honouring all the offers but conceded that there are delays of one or two months in onboarding people.

Krithivasan said his immediate priority will be to start meeting customers and understanding the business, especially the non-BFSI piece, and will also meet a wider set of employees going forward.

He also said that he is not in a hurry to initiate any structural changes in the organisation.

Gopinathan was tight-lipped about speculative reports of him continuing in an advisory role with TCS or parent Tata Sons. He will continue with the transition till September 15, even after ceasing to be the CEO on June 1.

Shares of TCS had closed 0.87 per cent up at Rs 3,242.10 a piece on the BSE at the end of Wednesday's trade as against gains of 0.39 per cent on the benchmark.

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