TCS Q4 Net Up 15% To Rs 11,392 Cr; Meets Estimates But Revenue Disappoints

Slower recovery in Tata Consultancy Services’ (TCS’) largest business region — North America — pulled down the fourth quarter (Q4) of 2022-23 (FY23) performance of India’s largest information technology (IT) services player.

The company’s management had expected to see a turnaround in the North American geography in the first quarter of calendar 2023.

TCS’ net profit at Rs 11,392 crore for Q4 (January-March quarter ended March 31, 2023) was up 14.8 per cent year-on-year (YoY). Sequentially, the firm’s profit was up 5 per cent.

Revenue for Q4FY23 grew 16.9 per cent YoY at Rs 59,162 crore. Sequentially, revenue grew by a mere 0.6 per cent on a constant currency basis. This is one of the slowest sequential revenue growth in constant currency over 11 quarters. 

The company’s Q4 performance missed Bloomberg estimates on revenue, but met profit estimation. Bloomberg had reckoned revenue to be at Rs 59,410 crore. Net profit, too, fell a tad short of the estimated Rs 11,533 crore.

For the full year, TCS reported revenue of Rs 2.25 trillion, up 17.6 per cent YoY. In dollar terms, the company’s revenue touched $27.9 billion, representing a growth of 13.7 per cent in constant currency.

“It’s a wait-and-watch scenario. As we look into the near-term demand scenario, it is varying for each market. Last quarter, we had expected North America to recover meaningfully towards the start of the quarter. But that recovery has not happened and turned negative. Other markets have grown along expected lines — the UK and Continental Europe have grown well,” said Rajesh Gopinathan, chief executive officer (CEO) and managing director, TCS.

He further added that there was no structural change in the tech story.

“We are not seeing people rethinking their transformational agenda. It is more of the discretionary projects that have been deferred or put on hold,” he added.

“TCS revenue and margin missed our estimates, led by weakness in North America. Healthy deal wins, total contract value (TCV), and strong client addition provide decent revenue growth visibility for 2023-24 (FY24). However, near-term weakness in North America and banking, financial services and insurance (BFSI) crisis will impact demand outlook and the overall global client sentiment. While TCS is well-placed to capture opportunities from optimisation and transformation opportunities, the weakness in North America concerning the banking crisis will keep near-term prospects muted,” said Sanjeev Hota, head-research, Sharekhan by BNP Paribas.

What did come as a surprise was the TCV for Q4. TCS reported TCV of $10 billion for the quarter, higher than its average range of $7-9 billion. For the full year, the firm’s TCV was at $34.1 billion. The quarter’s TCV was driven by BFSI at $3 billion. 

Biswajit Maity, principal analyst at Gartner, said regardless of macroeconomic uncertainty, TCS has registered decent growth — which is commendable.

“As regards overall IT services, Gartner forecast analysis shows overall IT services spending will increase by 5.4 per cent over 2022 spending levels, and top management is still focusing on its digital transformation journey. This trend will continue. Current economic turbulence will change the context for tech investments through 2023, increasing spending in some areas and accelerating decline in others, but not materially impact the overall level of tech spending,” he added.

TCS, however, disappointed on margins. Notwithstanding a favourable currency movement and cost pressures in check, the company could not improve its margins. The margins for FY23 came in at 24.1 per cent, down 121 basis points. Whereas for Q4, margins were similar to the preceding quarter at 24.5 per cent.

From a growth perspective, the company’s largest vertical — BFSI — continued to perform well in the face of macro headwinds.

K Krithivasan, the interim CEO, was confident of growth for FY24.

“We are closing this year on a strong note. We have an all-time high of large deals, which are above $50 million in size. Even the BFSI segment’s TCV came in at $3 billion. We have many new account wins in TCV. The near-term may look uncertain, but our order books show the focus of clients on tech spending to continue. We need to adjust according to client needs,” he said.

On the employee front, the company said it will honour all the offer letters and has added 22,600 employees on a net basis in FY23.

Milind Lakkad, chief human resource officer, said for FY24, the company will hire 40,000. During the year, the company onboarded over 44,000 — its highest-ever number of professional employees.