TCS Q3 Results: Revenue Rises 5% But Net Profit Misses Estimates

Revenue of Tata Consultancy Services Ltd. rose in a seasonally weak quarter as margin witnessed an uptick.

Watch | TCS Commentary After Q3 Results

In dollar terms, TCS' revenue crossed the $7-billion mark on the back of 15.4% annual growth in North America and the U.K. In constant currency terms, revenue rose 2.2% sequentially.

“We are pleased with our strong growth in a seasonally weak quarter, driven by cloud services, market share gains through vendor consolidation, and continued momentum in North America and U.K.," Rajesh Gopinathan, chief executive officer at TCS, said in a statement.

"Looking ahead, and beyond current uncertainties, our longer-term growth outlook remains robust.”

Margin Play

The IT bellwether aims to clock an operational profitability of 25% in the quarter ending March 31, 2023, TCS' Chief Financial Officer Samir Seksaria said in the post-earnings press conference. On the wage front, the supply-side challenges are abating as the elevated expectations of salaries and retention expenses have come down, he said.

“Improved productivity, currency support and abating supply-side challenges helped expand our operating margin in Q3," Seksaria said. "This gives us greater confidence in our ability to steer our profitability towards our preferred range...”

Segmental Performance

According to TCS, all industries saw broad-based growth in the quarter. The retail business led the charge with 18.7% growth year-on-year.

The life sciences and healthcare segment grew 14.4%, communications 13.5%, manufacturing 12.5%, and technology services 13.6%. The crucial BFSI segment—banking, financial services and insurance—grew at 11.1%.

"In a hybrid working model, we delivered many complex transformation programs tailored to the needs of our clients’ ecosystem with speed and agility," N Ganapathy Subramaniam, chief operating officer at TCS, said. "The year also saw us embracing data, AI and ML holistically to disrupt ourselves and drive competitive advantage to our clients’ businesses. All these augur well for our future as we step into 2023.”

Demand Scenario

Among major markets, North America and the U.K. led with 15.4% year-on-year growth, while Continental Europe grew 9.7%. In emerging markets, Latin America grew 14.6%, India 9.1%, Asia Pacific 9.5%, and Middle East and Africa by 8.6%.

"Overall demand scenario has not changed significantly, but to be fair, it would take us a couple of months to actually know what the decision-making is," Gopinathan said during a post-earnings press conference. "Everyone is cautious. But this caution has different colours across markets... In Europe, there is big caution... It will take some time for this caution to dissipate. We have to be cognizant about that and see where it goes."

As far as North America is concerned, while there have been challenges, they are not structural, Gopinathan said. It is subject to how the inflation scenario plays out.

People Power

TCS' attrition rate eased to 21.3% in the October-December quarter, which is indicative of the improved productivity built over previous quarters and investments in organic talent development, according to the statement.

As on Dec. 31, the headcount stood at 6,13,974—a net reduction of 2,197 during the quarter.

“Our focus over the last few quarters on bringing in fresh talent at scale, training them on new technologies and making them productive is paying off," Milind Lakkad, chief HR officer at TCS, said.

The Tata Group company has hired nearly 42,000 freshers so far this fiscal.

"We are not looking at pause on lateral hiring. We should be hiring in the range of 1,15,000- 1,25,000 people next year," Lakkad said at the press conference.

As on Dec. 31, the company had applied for 7,134 patents—including 212 applied during the quarter—and had been granted 2,694 patents, including 134 during the quarter.

On Monday, TCS' shares rose 3.35% on the BSE, while the benchmark Sensex ended the day 1.41% higher.