Share prices of Tata Consultancy Services (TCS) fell as much as 4.8% to a three-week low on July 11. India’s leading IT services provider missed first-quarter profit projections due to increased employee-related costs. The stock was down 4.71 percent at ₹ 3,111 on the BSE. It fell 4.76 percent to ₹ 3,110 on the NSE. Its market capitalization (mcap) fell by ₹54,830.89 crore to ₹11,39,794.50 crore in early trading on the BSE. The country’s largest software exporter TCS reported a 5.2 percent rise in net profit for the June quarter to ₹9,478 crore, limited by the impact of annual wage hikes and promotions that reduced operating profit margins to multi-quarter lows.
TCS posted a net profit of 94.78 billion rupees ($1.19 billion) on Friday, well below analysts’ average forecast of 98.51 billion rupees, according to data from Refinitiv. Operating margin decreased from 25.5 percent to 23.1 percent from 25.5 percent a year earlier, primarily due to annual wage increases, higher management costs associated with managing talent departures and the gradual normalization of travel costs.
Transaction flow and closings at TCS are still strong, according to CEO Rajesh Gopinath, but given the current state of the world, the company remains on alert.”While management expects technology spending to be resilient, we see clear signs of softening demand,” ICICI Securities said in a note.
TCS issued a warning that while net income for the June quarter was 14,136, the decline in absolute numbers is increasing.”While management appeared confident about the demand outlook, higher reliance on subcontracting coupled with lower net hiring (for at least seven quarters) suggests the company is bracing for an uncertain macro environment,” Jefferies analysts said in a note.
The order book for the quarter, which was $8.2 billion and up 1.2 percent from a year ago, also worried other analysts. Investors wanted to gauge the prospects of the industry, which has enjoyed a big hit over the past few years as companies ramped up their digital products during the pandemic. TCS was the first of its domestic peers to report profit. TCS also pulled the bluechip Nifty 50 index down by 0.5 percent, causing the Nifty IT index to fall by 3.1 percent. TCS shares have fallen 16.4% this year compared to a 29.2% decline in the Nifty IT index.
