TCS Q1 Results: Revenue Meets Estimates, Margin Narrows

Tata Consultancy Services Ltd.’s revenue rose for the eighth straight quarter on order wins as clients continued to spend on digital services despite fears of a recession.

Revenue of India’s largest software services provider rose 4.28% over the preceding quarter to Rs 52,758 crore in the three months ended June 2022, according to its exchange filing. That compares with the Rs 52,473.5-crore consensus estimate of analysts tracked by Bloomberg.

Its revenue in dollar terms stood at $6,780 million, up 1.3%. In constant currency, it rose 3.5% sequentially.

TCS Q1 FY23 Highlights (QoQ)

• Net profit fell 4.5% to Rs 9,478 crore, compared with the Rs 9,908-crore forecast.

• Operating profit fell 3.5% to Rs 12,186 crore.

• EBIT margin stood at 23.1% against 24.96%

• TCS won new deals worth $8.2 billion in Q1 compared with $11.3 billion in Q4.

• Attrition inched up to 19.7%% on the trailing 12-month basis from 17.4% as of March 2022.

• The company added 35,209 employees on net basis.

The company is seeing steady demand, Rajesh Gopinathan, managing director and chief executive officer at TCS, said. "As of now, there is no indication of softening of demand. There is an increasing feeling of recession in senior management discussion. Have not seen any on the ground."

Chief Operating Officer N Ganapathy Subramaniam said it is safe to assume the quarterly run rate will be $7-9 billion range. This quarter the company won a "couple of $400 million and other medium deals".

Attrition, Gopinathan said, has a bit of seasonality. "We expect attrition to be there in Q2. We expect that to flatten in H2 onwards. But we are seeing easing of supply due to supply from outside the industry."

According to Samir Seksaria, chief financial officer, margin contracted due to salary hikes, which had an impact of 150 basis points. "Typically in Q1, we have impact on margins due salary hike across the board and we plough back the same in the subsequent quarters."

"The quarter saw cross-currency headwinds with dollar strengthening against other currencies. In dollar terms, the impact was 220 bps and in rupee terms it was 80 bps. The cross-currency had a positive impact of 25 bps on the margins," Seksaria said.

The company has a target of hiring 40,000 employees.

"If there is recession or any macro issue affecting the industry then retail and other sectors will get impacted. But what we see companies are talking about technology spend which are strategic for them and it is unlikely to pull the plug," Subramaniam said.

Retail and consumer grew the most among segments TCS operates in, followed by lifesciences and healthcare and communication, media and technology.

Shares of TCS closed 0.66% lower before the results were announced compared with a 0.54% gain in the Nifty 50.