Narrowing margin limits TCS net profit growth to 7.4% in Q4; bullish on FY23

Mumbai: Tata Consultancy Services (TCS) on Monday reported a 7.4 per cent increase in its March quarter net profit to Rs 9,926 crore as profit margins narrowed, but the country's largest software exporter sounded confident about the new fiscal on positive business momentum.

For FY22, the net profit jumped 14.8 per cent to Rs 38,327 crore under the International Financial Reporting Standards (IFRS) accounting system on the back of a 15.4 per cent expansion in the topline to Rs 1.91 lakh crore.

The company also reported its highest-ever total revenues of Rs 50,591 crore in the quarter.

The Tata Group's cash cow booked revenues of Rs 50,591 crore, its highest ever, in the March quarter, which was 15.8 per cent higher than the same reported in the year-ago period.

Its chief executive and managing director Rajesh Gopinathan hinted that the company will be aspiring for double-digit growth in FY23 as well, given the handsome growth witnessed in FY22, pointing out that the demand environment is very strong and there is a strong market acceptance for the services offered by it.

He said the overall business momentum is positive and the company is optimistic, especially on how it has set itself up for the future, which includes embarking on an ambitious reorganisation from April 1.

The Tata Group's cash cow booked revenues of Rs 50,591 crore in the March quarter, which was 15.8 per cent higher than the same reported in the year-ago period.

However, the same could not translate into a bigger bottom-line impact on an increase in expenditure lines. The operating profit margin narrowed by nearly 1.9 per cent to 25 per cent, trailing the aspirational band of 26-28 per cent.

Its chief financial officer Samir Seksaria explained that 'tactical interventions' and external factors hampered the margins, while currency and operational efficiencies helped it.

He said it continues to be aspirational of meeting the band, but added that there will be short term volatilities, especially ones emanating from the human resources side, which it will have to deal with.

As the industry facing pressure on talent, the company's attrition moved up to 17.4 per cent as of March, but Gopinathan said the same is "flattening" and will reach a crest in the June 2022 quarter.

The company hired 1 lakh freshers from campuses in FY22 against the stated target of 40,000 and has set a similar target of 40,000 for FY23 as well, its chief operating officer N G Subramaniam said, adding that it will take a call dynamically on overshooting the number as per the business environment.

At present, 95 per cent of the 5.92 lakh people are working from offices, and very soon, 50,000 people - forming the top tier - will limit their presence in offices to thrice a week and the company will have a fifth of its staff working from homes by the middle of the fiscal, Gopinathan said.

He said the company gave an increment of 6-8 per cent in FY22 and will be looking at similar hikes with an upward bias in FY23.

From a demand perspective, the company reported a total contract value of USD 11.5 billion for the March quarter, which included two deals with a revenue potential of over USD 1 billion each, Gopinathan said, adding that even if one were to exclude the large-sized ones, the company will be able to sustain the USD 8-8.5 billion run rate on this crucial number going ahead against the earlier average of USD 7 billion per quarter.

Subramaniam said its mainstay of banking, financial services and insurance had a soft quarter after posting high growth earlier but exuded confidence of coming back.

From a geographical perspective, the largest revenue contributor North America did well with an 18 per cent growth.

The company does not see any business impact because of the Russian invasion of Ukraine, Gopinathan said, adding that it does not have any presence in the affected areas. It employs about 5,000 people in Eastern Europe in countries like Hungary, Slovenia etc, which is a part of its strategy to have multiple delivery centres in Europe.

Subramaniam said it sees a positive impact from a talent perspective because as people migrate out of Ukraine, they are in search of jobs in surrounding countries and the region.

Gopinathan said the company wishes the strife to end at the earliest and has also made contributions of 1 million euro towards relief efforts.

He said technology is the top priority when it comes to spending which makes TCS confident about the future, despite the gloomy times we are in.

The quantum of cash on the books as of March 2022 stood at Rs 56,000 crore, and the company board has proposed a dividend of Rs 22 per share.

The company scrip on Monday gained 0.26 per cent to close at Rs 3,696.40 apiece on the BSE against a 0.81 per cent correction on the benchmark.