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TCS net profit rises 5.2% in Q1, misses estimates – Economic Times

Mumbai | Bengaluru: said its net profit rose to ₹9,478 crore in the first quarter of this financial year, expanding by 5.2% over the previous year but falling short of analyst estimates as steep salary hikes and increased lateral hiring amid rising attrition weighed down operating margins for India’s largest software exporter.

The Mumbai-headquartered company reported revenue of ₹52,758 crore, an increase of 16.2% from ₹45,411 crore in the June 2021 quarter, beating the 15.8% growth estimated in an ET poll of analysts. The company declared an interim dividend of ₹8 per equity share. Pointing to :steady demand in the short to medium term”, Rajesh Gopinathan, managing director and CEO of the Tata Group company cautioned that “however, at senior level, there are increasing discussions about the (US) recession”.

“But we don’t see an immediate footprint of it on our demand side,” Gopinathan told reporters at a post earnings conference.

Top executives termed the first quarter of fiscal 2023 as “challenging” from the point of view of rising costs due, in large part, to rising attrition which touched 19.7% compared with 17.4% in the previous quarter. Sequentially, revenue for the April-June quarter rose 4.3% even as profit contracted 4.6%.

Analysts are of the view that there is merit in TCS’s assertion of a strong revenue growth momentum despite the macroeconomic concerns. “The net profit miss is mainly due to (lower) operating margin and not top line. Hence, this is a validation (of) growth momentum. The margins are down due to supply-side challenges that the overall industry has been facing,” said Ruchi Burde Mukhija, vice president of Technology & Internet Equity Research at Elara Capital.

Attrition Cost Rises

The company said seasonality factors such as junior employees leaving for higher studies contributed to the spike, requiring the company to increase lateral hiring, thereby adding to costs.

Operating margin stood at 23.1%, dipping 240 basis points over 25.5% reported a year ago and down 190 basis points over the 25% reported last quarter. Margins were impacted by annual increments to the tune of 150 bps and 30 bps impact was from travel costs.

The company’s order book stood at $8.2 billion in the just ended three-month period compared with the blockbuster $11.3 billion reported in the previous quarter. This includes a few deals in the $400 million-plus range.

During the April-June quarter, TCS reported major deals from clients like Payments Canada, Financial Ombudsman Service UK, Kansas Department of Labour and Stellantis Group.

Among major markets, North America led with 19.1% growth while Continental Europe clocked 12.1% and UK with 12.6% growth respectively. However, on a sequential basis the UK decreased by 3.3%.

In emerging markets, India grew 20.8%, Asia Pacific grew 6.2%, Latin America grew 21.6% while Middle East & Africa grew 3.2%.