Overall demand scenario not changed significantly but Europe is a problem says TCS CEO

• India’s largest IT services company TCS said on Monday that the overall demand scenario has not changed significantly as it declared its Q3 FY23 earnings.
  
• It reported a 13.5% year-on-year growth in revenue in constant currency terms to ₹58,229 crore.
  
• The company declared a dividend of ₹75 per share, which also includes a special dividend of ₹67.
  

India’s largest IT services company TCS said on Monday that the overall demand scenario has not changed significantly, as it declared its third quarter earnings for FY23. The company’s CEO Rajesh Gopinathan however said that the European market is a “real big issue”.

“Europe is a problem and the US whether it's a problem or not, time will tell. The overall demand scenario has not changed significantly and we will know more in a few more months. Everyone went into December being very cautious. But we are positive on the US market,” said Gopinathan during a post-earnings conference call.

TCS underlined that in the key markets of North America and UK, the demand environment was supportive. The European markets will take time for caution to dissipate, the company’s CEO said. The International Monetary Fund (IMF) said on January 2 that a third of the global economy will be in recession this year.

Subdued Q3 earnings

The company reported a 3.98% sequential growth in net profit at ₹10,846 crore in the December quarter, compared to ₹10,431 crore in the September quarter – missing analyst expectations.

In constant currency terms, revenue in the December quarter grew 13.5% year-on-year to ₹58,229 crore. TCS’s quarterly revenues touched $7 billion in the Q3 which is known to be a seasonally weak quarter.

Its operating margin contracted 0.5% YoY to 24.5%. Net margin stood at 18.6% in Q3 FY23, compared to 18.9% the previous quarter and 20% a year ago.

North America and UK, two of TCS’ primary markets, led with a year-on-year growth of 15.4%, each, in constant currency terms. These two markets together constitute about two-thirds of the company’s revenue and nearly three-fourths of its profit.

TCS’ order book stood at $7.8 billion at the end of the December quarter, including deals with clients like AGL, which is Australia’s largest energy provider; expansion of its decade-long partnership with Marks & Spencer; and a new partnership with BT Group, UK’s leading telecom provider.

The IT services major declared a dividend of ₹75 per share, which includes a special dividend of ₹67. The record date is January 17, 2023, and the payment date is February 3, 2023.


Source: Company reports

The retail segment emerged as the best performer in terms of percentage growth over the previous quarter, followed by BFSI and communication.


Source: Company reports

Attrition sees marginal improvement, overall headcount declines

Attrition rates improved marginally to 21.3% in Q3, from 21.5% in the previous quarter. Overall, the company’s headcount stood at 6,13,974 at the end of December, 2022, with a decline of 2,197 employees during the quarter.

However, the company maintained that its overall posture is positive despite the first fall in headcount in the last ten quarters. "Our posture is positive. We are not pulling back, and not pulling people off the field," said N Ganapathy Subramaniam, the COO and the executive director.

The company’s CFO Sameer Seksaria added that the elevated expectations of salaries have come down. The company said that it will continue hiring in the range of 125,000 to 150,000 people next year too, indicating their medium and long term outlook.

“On the short term, however, we cannot comment,” said Gopinathan.

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