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Published: January 12, 2024
Updated: January 12, 2024

IT Giants TCS AND INFOSYS Post weak numbers amidst Challenging Q3 Earnings Season

India's IT powerhouses, Infosys and TCS, ushered in the Q3 earnings season, signalling the impact of a challenging macro environment on their performance.

Attrition and Workforce Dynamics:

While attrition remained contained, both companies witnessed a negligible addition to their workforce, with over 11,000 employees leaving. The workforce-related challenges were reflective of the global market slowdown.

Infosys: Navigating Challenges with Cautious Optimism:

Infosys, the second-largest IT services company in India, reported a 7.3% drop in net profit for Q3, prompting a revision in revenue growth guidance for FY24. The company now anticipates a growth range of 1.5 to 2%, down from the earlier estimate of 1 to 2.5%.

TCS: Resilience Amidst Softness:

TCS, in a comparatively better position, posted a 2% YoY rise in net profit for Q3. However, a closer look at growth rates revealed a slowdown compared to the previous year.

Management Commentary on Market Sentiment:

Top executives from both companies echoed sentiments of ongoing uncertainty in client budget spends. The CEOs, K Krithivasan of TCS and Salil Parekh of Infosys, expressed caution about the recovery timeline, citing persistent decision-making uncertainty.

Market Dynamics and Regional Impact:

The Q3, known for being seasonally weak for IT firms, revealed softness in the industry's largest market, the US. Both TCS and Infosys experienced a decline in growth from the US, particularly in sectors like BFSI.

Margins and Cost Optimization:

Amidst slow revenue growth, margins for both companies were impacted. TCS saw a 70 basis points improvement in operating margins, primarily attributed to cost optimization and productivity gains. Infosys, on the other hand, witnessed a drop in margins due to salary hikes.

Sectoral Performance and Geography Driven Growth:

Beyond BFSI, growth was tepid across sectors like telecommunications, media, and technology services. Both companies saw growth driven by Europe, with TCS emphasising growth from the UK.

Workforce Reduction Despite Low Attrition:

Despite low attrition rates of 13.3% for TCS and 14.6% for Infosys, both companies witnessed a reduction in headcount. This trend raises concerns about the industry's growth trajectory.

Contract Value Signals Momentum:

A silver lining amidst challenges was the total contract value signed. TCS reported a Total Contract Value (TCV) of $8.1 billion, showcasing healthy momentum, albeit lower than the previous quarter. Infosys recorded a TCV of $3.2 billion, indicating a slight dip from the same period last year.

The Q3 results underscore the turbulent times faced by IT giants amid a cautious market. While challenges persist, the healthy contract values signal resilience, pointing towards potential recovery in subsequent quarters. Industry leaders remain watchful as they navigate through uncertainties, awaiting more clarity in the upcoming financial year.