Moderate Q2 net at TCS spells cautious near-term
However, it witnessed sequential 0.2% decline (in dollar terms) in its revenue at $7.2 bn; IT major announced buyback plan worth Rs17,000 cr at Rs4,150/ share
TCS Q3 Outlook: Slow earnings growth, emphasis on deals, demand
Internal Efficiency Amid Global Headwinds
♦ TCS approved its 5th share buyback in last 6 yrs
♦ It also announced its 2nd interim dividend worth Rs9/ share
♦ Gen AI, other new technologies longer-term growth prospects
♦ Falling attrition, higher utilisation levels supported margin profile
Sentiment has not improved. Clients remain cautious on technology spending space. We have a very strong deal momentum as vendor consolidation, cost optimisation and digital transformation themes play out in the market - K Krithivasan, CEO & MD, TCS
Bengaluru: Tata Consultancy Services (TCS) on Wednesday reported subdued growth in revenue though its deal pipeline remained robust with marginal improvement in its operating margin. The Tata Group company said there was little improvement in the overall sentiment as compared to first quarter and clients remained cautious on technology spending.
In the second quarter ended September, TCS reported a net profit of Rs11,342 crore driven by a strong order book, especially in the BFSI segment amid a tough business environment. The net profit rose 8.7 per cent from Rs10,431crore in the year-ago period. Its consolidated revenue for the quarter came in at Rs59,692 crore, a rise of 7.9 per cent over the Rs55,309cr in same period last year.
In dollar term, however, the company witnessed sequential decline in its revenue. In Q2, revenue stood at $7.2 billion, a decline of 0.2 per cent over the previous quarter.
During the quarter, the total order book of the company stood at $11.2 billion as many cost takeout deals were bagged by the company during this period.
“Sentiment has not improved. Clients remain cautious (on technology spending space). We have a very strong deal momentum as vendor consolidation, cost optimisation and digital transformation themes play out in the market. Though we won several large deals, we are not compensating for the de-growth that has come from low volume. Among the markets, UK continued to perform well. Our regional markets like Middle East, India and others are also performing well,” K Krithivasan, Chief Executive Officer and Managing Director of TCS said.
“The resilience of demand for our services, our clients’ willingness to commit long tenure programs and their continued appetite for experimentation with Gen AI and other new technologies give us confidence in our longer-term growth prospects,” he added.
During the quarter, operating margin improved 30 basis points YoY to 24.3 per cent. Falling attrition, higher utilisation levels and operational efficiency supported the margin profile.
Among verticals, energy, resources and utilities vertical grew 14.8 per cent, while manufacturing grew 5.8 per cent and life sciences and healthcare grew 5 per cent. The company said there was no material improvement in sentiment in the BFSI sector.
Among geographies, the UK grew 10.7 per cent, while North America grew a mere 0.1 per cent and Continental Europe growth was 1.3 per cent.
The company saw smart improvement in its attrition level as overall employee attrition fell to 14.9 per cent from 17.8 per cent in the previous quarter.
Employee count remained subdued as the company saw fall in headcount by 6,333 to 608,985 employees by the end of September quarter.
Share buyback:
TCS has approved its fifth share buyback in the last six years. The company said it will be repurchasing shares at a price of Rs4,150 per share with a total buyback consideration up to Rs17,000 crore. The company also announced its second interim dividend worth Rs 9 per share for financial year 2024.
