TCS Q3 net up 12% to Rs 9,769 crore on higher revenues; talent wars crimp margins

The country’s largest software exporter TCS reported a 12.2 per cent jump in December quarter net profit at Rs 9,769 crore on handsome revenue growth, and guided towards maintaining the same momentum going forward on the back of a strong demand environment.

The city-headquartered company, the cash cow of the over USD 100 billion Tata Group, witnessed a 16.3 per cent jump in its revenue to Rs 48,885 crore for the reporting quarter.

However, difficulties on the talent front — which resulted in measures like fast-paced hiring and promotions to over a lakh employees — resulted in the operating profit margin slipping 0.60 per cent to 25 per cent.

The company, which is sitting on cash and equivalent of over Rs 65,000 crore, also announced an up to Rs 18,000-crore buyback offer where it has committed to pay Rs 4,500 per share.

Among the rivals — it was a rare occasion when the top three IT companies reported their quarterly earnings on the same day — Infosys posted an 11.8 per cent growth in its bottomline at Rs 5,809 crore and upped its FY22 revenue guidance to up to 20 per cent, while Wipro‘s profit was flat at Rs 2,969 crore.

“The demand environment is strong and the possibility of growth headroom is very high. Our aim is to maintain the momentum and we will go all out for the same,” TCS managing director and chief executive Rajesh Gopinathan told reporters.

On margins — which have trailed its aspiration band of 26-28 per cent — he admitted that there will be volatility in the near term but pointed out that the combination of robust demand environment and investments on the supply side will ensure that the company will deliver strong growth with stable margins in the days ahead.

He said while salaries can have a short term impact on margins, investing on talent is the best thing to do for the company on both the revenue and profitability growth front from a medium to long-term perspective.

The company reported total contract value (TCV) of new deals signed during the quarter at USD 7.8 billion, and Gopinathan said it came from a bunch of mid-to-large sized deals, with the odd mega-deal. He also stressed that past TCVs are resulting in revenue bookings as expected.

Its chief financial officer Samir Seksaria said the company has decided to prioritise growth with whatever interventions that are required and then look at the profitability metrics.

The company hired 28,238 employees on a net basis, taking the total number of employees to 5,56,986 as on December 31, 2021.

Its chief human resources officer Milind Lakkad said it has already breached the H2FY22 target of hiring 34,000 freshers in the first quarter itself, and added that it will be giving another 40,000 promotions to the existing staff over and above the 1.10 lakh already done.

The company witnessed a jump in attrition at 15.8 per cent for the quarter, but added that it is seeing signs of the same “bottoming out”.

The company management said demand for deals is very strong with digital transformation leading the charge.

It witnessed strong revenue from both its key geography (North America) and also key vertical (banking financial services and insurance) during the quarter, with many segments showing revenue growth of over 17-18 per cent on a year-on-year basis.

Gopinathan said the ongoing hardening of interest rates in the US, which is witnessing a surge in inflation to record highs, is not impacting business for an IT supplier like TCS.

On the Omicron threat, he said it is impacting travel, which is more of a supply side issue for a company like TCS, rather than being a demand-side factor where clients withdraw from work.

He also said client interactions done in the recent past suggest continuing budget allocations for IT work in the new year as well, while Seksaria said the company has witnessed an uptick in its pricing power as well.

While Wipro announced a complete shutting down of its offices for four weeks, TCS’s chief operating officer N Ganapathy Subramaniam said the company has vaccinated 90 per cent of its workforce and immediate family members, and the senior leaders have started coming back to offices.

He also said it is continuing on the hybrid working model under which by 2025, it plans to have 25 per cent of its staff working from offices.

The buyback offer announced by the company — its fourth such move in quick succession — at Rs 4,500 per share is 16.6 per cent higher than Wednesday’s closing level of Rs 3,857.25 per piece.

The company’s scrip closed 1.50 per cent down as against gains of 0.88 per cent on the benchmark. The results were announced after market hours.


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