News

Published: October 12, 2023
Updated: October 12, 2023

TCS Q2 FY24 Performance: Buyback Announcement and Growth Challenges

Tata Consultancy Services (TCS) has released its financial results for the second quarter of 2023-24, shedding light on the company's performance in a challenging environment. The announcement of a significant buyback and mixed financial figures hint at potential growth hurdles for the fiscal year.

Buyback Announcement:

TCS's board has declared a buyback of shares worth a substantial Rs 17,000 crore, pricing them at Rs 4,150 per share. This marks the fifth buyback initiative by the company since 2017.

Financial Figures:

TCS, India's leading IT services provider, reported a net profit of Rs 11,342 crore, representing an 8.7% year-on-year increase. However, sequential net profit growth was a modest 2.42%. Revenues for the quarter reached Rs 59,692 crore, reflecting a 7.9% year- on-year rise but only a marginal increase compared to the previous quarter.

Challenges in Meeting Estimates:

TCS fell short of Bloomberg's estimates for both revenues and net profit. Bloomberg had predicted revenues at Rs 60,353 crore and net profit at Rs 11,409 crore. This raises questions about achieving double-digit growth for the full fiscal year, particularly considering the soft growth observed for two consecutive quarters.

Order Book Strength:

Despite these challenges, TCS maintains a robust order book valued at $11.2 billion. This consistency marks the third consecutive quarter with an order book around the $10 billion range. The company attributes this resilience to its strong execution and the prevailing macroeconomic uncertainties.

Client Behavior and Market Trends:

TCS CEO and Managing Director K. Krithivasan mentioned that clients continue to show interest in investing in new technologies, resulting in high technology adoption. Simultaneously, clients are increasingly focusing on cost-optimization projects due to macroeconomic headwinds. This mix of trends has led to the postponement of some deals and ongoing project pauses, impacting top-line growth.

Segment-Specific Performance:

TCS's performance in the BFSI (banking, financial services, and insurance) vertical and the US market experienced some challenges, with the BFSI vertical showing a 0.5% year-on- year decline, and North America registering a mere 0.1% growth. However, the UK continued to be a growth driver with a robust 10.7% expansion year-on-year.

Amidst these fluctuations, certain verticals, such as energy, resources, and utilities, led growth with a substantial 14.8% year-on-year increase, followed by manufacturing at 5.8%.

Attrition and Headcount:

TCS witnessed a decline in attrition, dropping to 14.9% for the quarter. Remarkably, the company saw one of its largest headcount drops in a quarter, amounting to 6,333 employees. The company attributes this to its investments in fresh talent and the recalibration of gross additions to remain below departures.

Generative AI:

TCS is making strides in Generative AI, with over 250 opportunities in the pipeline and having trained 100,000 employees in the field. This reflects the company's commitment to embracing emerging technologies.

Concerns about the Israel-Hamas Conflict:

TCS expressed minimal concern regarding the impact of the Israel-Hamas conflict on its business. However, the company emphasized its priority of ensuring the safety of its employees in the affected region and stated its ongoing communication with them to address potential risks.

TCS's Q2 FY24 results present a mixed picture of financial performance, highlighting the ongoing challenges in the global IT services landscape. While the company faces difficulties in meeting growth estimates, it maintains a strong order book and continues to adapt to changing market dynamics, emphasizing innovation and cost optimization.