TCS FALLS SHORT OF REVENUE EXPECTATIONS

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Tata Consultancy Services (TCS) Reports Disappointing Q2 Results

Tata Consultancy Services (TCS) recently released its second-quarter results, which fell short of market expectations. The company reported an 8.73 percent growth in net profit amidst a subdued macro-economic environment, marked by slower project ramp-ups. TCS recorded a net profit of Rs 11,342 crore for the July-September quarter, compared to Rs 10,431 crore in the same period the previous year. However, this figure was below analysts’ estimates, which averaged around Rs 11,409 crore. On a sequential basis, the net profit grew by 2.42 percent, slightly below the anticipated 3 percent.

TCS also failed to meet revenue expectations, with revenue increasing by 7.9 percent to Rs 59,692 crore compared to Rs 55,309 crore in the same period the previous year. Analysts had expected revenues to fall between Rs 60,300 crore and Rs 60,600 crore. Furthermore, revenues in US dollar terms declined sequentially for the first time since the April-June quarter of 2021, dropping from $7.22 billion to $7.21 billion.

Despite these challenges, TCS saw growth in operating margins, which increased by 110 basis points sequentially to 24.3 percent. The order book also showed promise, rising nearly 10 percent to $11.2 billion.

K. Krithivasan, the CEO and managing director of TCS, highlighted the strong deal momentum that led to a substantial order book in the second quarter, marking the second-highest Total Contract Value (TCV) ever achieved in a single quarter. He expressed confidence in the company’s long-term growth prospects, attributing it to the continued demand for services, clients’ commitment to long-term programs, and their willingness to explore new technologies like Gen AI.

Krithivasan acknowledged the challenges presented by the global economic environment, characterized by persistent inflation and central banks maintaining high-interest rates. This has led to a slowdown in new transformational projects, which are not compensating for the completed ones, resulting in revenue stagnation.

While TCS did not provide a specific timeline for recovery, they noted that some markets performed well in the second quarter, with Latin America, the UK, and the Asia Pacific showing growth. However, North America experienced minimal growth at only 0.1 percent.

In terms of verticals, the Banking, Financial Services, and Insurance (BFSI) sector declined by 0.5 percent compared to the previous year, while technology and services fell by 2.2 percent. Other verticals, such as energy, resources, and utilities, manufacturing, and life sciences and healthcare, performed better during the quarter.

TCS Chief Human Resources Officer Milind Lakkad attributed the decrease in net employee count to slower hiring in comparison to attrition. The company is honoring all offers to new hires, but business requirements may result in delays in joining dates.

In addition to disappointing results, TCS also announced a share buyback offer that fell short of market expectations. The board of TCS approved a share repurchase program for up to Rs 17,000 crore, representing 1.12 percent of the total paid-up equity share capital, at a price of Rs 4,150 per share. Market expectations were higher, anticipating a buyback size of Rs 18,000-22,000 crore and a share price of Rs 4,300-4,500.

These developments led market experts to predict a potentially negative opening for TCS stock in the coming days, considering the subpar results and the underwhelming buyback offer.

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