Net profit rose to ₹10,846 crore in the quarter ended 31 December from ₹9,769 crore a year earlier, the company said in a statement. Analysts, on average, expected the company’s quarterly profit to be ₹11,000 crore.
Rupee revenue for the third quarter of the current fiscal, however, grew 19.1% to ₹58,229 crore from ₹48,885 crore, led by growth in cloud services, cybersecurity, consulting services and enterprise application services during the quarter.
The company’s constant currency revenue (after removing the effects of currency fluctuations) growth slowed to 13.5% from 15.4% during the same period last year.
The December quarter is typically a seasonally weak one for the sector as it coincides with the holiday season in many Western countries, leading to lower spending on IT services.
On the operational front, Ebit (earnings before interest and tax) rose 16.7% to ₹14,284 crore in the December quarter against ₹12,237 crore seen during the same period the previous year.
The company’s Ebit margin, however, contracted 50 basis points (bps) to 24.5% versus 25% in the year earlier, owing to seasonality. One basis point is one-hundredth of a percentage point.
The company said it would pay shareholders a special dividend of ₹67 a share in addition to an interim dividend of ₹8.
TCS witnessed a 3.7% drop in its order book to $7.8 billion in the December quarter from $8.1 billion at the end of the September quarter because of fears of a recession in the US and Europe amid geopolitical tensions in Europe.
TCS saw 15.4% growth in the North American market, 9.7% in continental Europe, 9.1% in India, and 8.6% in the Middle East and North Africa region when compared with 18%, 17.5%, 15.2%, and 6.9%, respectively, in the year earlier.
“Uncertainties in the US are expected to ease up very quickly in the coming quarters. No one knows how long the uncertainties in EU will last, and the UK does not have any uncertainty right now," said Rajesh Gopinathan, managing director and chief executive of TCS.
Adding that TCS is on target to reach the 25% Ebit margin outlook by the end of this fiscal year, he said, “Looking ahead and beyond current uncertainties, our longer-term growth outlook remains robust."
Mitul Shah, head of research at Reliance Securities, said TCS offered a subdued December quarter performance. While constant currency revenue rose 2% sequentially, beating analyst estimates of 1.4%, Ebit was 38 bps below estimates, while profit after tax was 3.7% below estimates.
Sanjeev Hota, head of research at Sharekhan, said TCS delivered constant currency revenue growth of 2.2% sequentially, beating street estimates in a seasonally-weak December quarter.
“At the current juncture, owing to multiple global headwinds, the outlook for FY24 looks uncertain, but the recovery could be gradual in the coming quarters," Hota added.
Among verticals, retail and consumer packaged goods grew the fastest at 18.7%, followed by life sciences and healthcare, manufacturing, and financial services.
“Improved productivity, currency support and abating supply-side challenges helped expand our operating margin in the third quarter. This gives us greater confidence in our ability to steer our profitability towards our preferred range while continuing to invest in building newer capabilities to support our growth and market share gains," said Samir Seksaria, chief financial officer of TCS.
In the December quarter, the company reported a lower attrition rate of 21.3% from 21.5% in the preceding three months.
TCS’s chief of human resources, Milind Lakkad, earlier said they believe annualized attrition peaked in the September quarter. The company’s headcount, however, fell by 2,197 employees, its first decline time in 10 quarters. A contraction in the net addition number was seen previously in the first quarter of FY21, which was when India was in a complete lockdown due to the first wave of the pandemic. TCS’s total headcount now stands at 613,974 employees.
“The most pinching negative is that the headcount has come down sequentially, and the latter is typically a metric that offers guidance on future demand and the management’s confidence in their business," said Ruchi Mukhija, an analyst at Elara Securities India.
On Monday, shares of TCS rose 3.35% to ₹3,319.70. The company announced its earnings after market hours.
