TCS March-quarter profit rises 7.4%, revenue up 16%

Tata Consultancy Services reported a weaker-than-expected profit in the fourth quarter as the IT behemoth spent more money to hire and retain employees during the pandemic which fuelled a digital services boom and a war for talent.

The lacklustre profit numbers came despite record-breaking quarterly revenue from the market leader, which gained from higher client spending on digital transformation during Covid-19.

“The margins are slightly below expectations and a key reason could be a high attrition rate of 17.4%. We expect the attrition rate to stay elevated over the next year as the demand for software engineers is very robust,” said Abhay Agarwal, a fund manager at portfolio management services firm Piper Serica.

“TCS will have to come up with human resources practices that are at par with its global peers to reduce attrition,” said Agarwal, who urged the industry leader to identify the companies it was losing its employees to and react accordingly.

“If it is the startups, it will have to provide the same entrepreneurial environment to its young employees,” he added.

Net profit at the Mumbai-based software services exporter rose 7.4% in the three months ended March 31, to Rs 9,246 crore, but missed the analysts’ average estimate of Rs 10,055 crore, according to Bloomberg.

Revenue jumped 15.8% to Rs 50,591 crore, led by the retail and manufacturing verticals at 22.1% and 19%, respectively. Analysts had expected the company to report fourth-quarter revenue of Rs 50, 263.1 crore.

Companies across sectors shifted to hybrid working models and spent more money on services including cloud computing, cybersecurity, digital payments and crypto platforms during the pandemic, boosting the deal wins and fortunes of software services exporters.

The company’s attrition rate rose to 17.4 per cent in the fourth. That rate was at 8.6 per cent in the first quarter, 11.9 per cent in the second quarter and 15.3 per cent in the December quarter, showing a consistent increase.

“TCS, like most other Tier 1 firms, has and will continue to show an increase in demand from BFSI, healthcare, and retail sectors, as well as tailwinds caused by an acceleration in digital technologies. Hiring for these skills will continue to be up and with the attrition and skilling initiatives, there might be continued pressure on EBIT Margins,” said Vijay Sivaram, the chief executive officer of Quess IT Staffing.

ICICI Securities had also predicted that rising wages compounded with talent shortages would likely dampen IT spending budgets going forward.

TCS CEO Rajesh Gopinathan said that he expected to see about 20% of the workforce return to the office by the end of the second quarter of the current financial year.

TCS also reported its highest-ever order book at $11.3 billion for the quarter and $34.6 billion for the full fiscal year.

“TCS has a slight edge over Infosys as far as winning mega deals is concerned because of its larger size and ability to 'pyramid' the project teams. We believe that Infosys will have to catch up with TCS for mega deals,” Agarwal said. Infosys is due to report its fourth-quarter results on Wednesday.

TCS’s Gopinathan played down concerns tied to the Russia-Ukraine war and dismissed fears that its business could be affected by the crisis in eastern Europe, highlighting how it had a minimal presence in the region.

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