TCS dips 2% as Q3 profit misses estimates; board okays Rs 75/sh dividend

Shares of Tata Consultancy Services (TCS) were down 2 per cent at Rs 3,242 on the BSE in Tuesdays’ intra-day trade after the information technology (IT) major reported 11 per cent year-on-year (YoY) growth in net profit at Rs 10,846 crore for the quarter ended December 2022 (Q3FY23). Revenue for the quarter came in at Rs 58,229 crore, up 19.1 per cent YoY in reported terms and 13.5 per cent YoY in constant currency (CC) terms.

Sequentially, TCS’s revenue was up 5.2 per cent. The company reported 2.2 per cent quarter on quarter (QoQ) CC growth for Q3 while dollar revenue growth was 2.9 per cent QoQ. EBIT margin improved ~50 bps QoQ at 24.5 per cent.

Meanwhile, the board of directors declared a third interim dividend of Rs 8 and a special dividend of Rs 67 per equity share of Re 1 each. The third interim dividend and the special dividend shall be paid on Friday, February 3, 2023, to the equity shareholders of the company. It has fixed January 17, 2023, as the record date for the purpose.

Though TCS beat the Bloomberg estimate on revenue (Rs 57,207 crore), the company could not meet the net profit expectation (Rs 11,064 crore). Growth for the quarter was broad-based in terms of both geography and verticals and it was further propelled by cloud demand and market share gains. However, the company did not quantify the cloud momentum. CLICK HERE FOR FULL REPORT

TCS does not give guidance but the management said that it is confident about the demand scenario. It further said technology spends are intact.

“TCS’s Q3 performance was a tad better than our expectations both in revenues and margins. Order book (continue to be in the guided range of $7-9 bn quarterly) though has come down QoQ by 4 per cent but was up 3 per cent YoY, which is commendable, in our view, considering significant demand change in the last one year,” ICICI Securities said in a note.

The only pain point, as per management, is the continental Europe market (15 per cent revenue mix) where there is lot of uncertainty due to geopolitical issues. Net decline in employees should be seen in the context of normalisation of growth and strong hiring in the last six quarters and is not a worrying sign in our view. Moderation of attrition is a positive and indicates easing of supply side challenges, which is likely to support margins, going ahead, the brokerage firm said.

Increase in interest rates, slow economic growth, and elevated geo-political tensions have adversely impacted the macro environment and raised concerns over IT spends. Given TCS’s size, order book, and exposure to long duration orders, and portfolio, it is well positioned to withstand the weakening macro environment and ride on the anticipated industry growth, Motilal Oswal Financial Services said in its result update.

Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios, the brokerage firm said.