TCS and Infosys log muted sales growth

TCS and Infosys log muted sales growth

Mumbai | Bengaluru: Tata Consultancy Services (TCS) said its consolidated net profit rose 2% on-year to Rs 11,058 crore in the December quarter even as its closest rival Infosys recorded a 7.3% decline at Rs 6,106 crore, due in large part to an unprecedented cyber-attack as well as hefty wage hikes.

The muted YoY numbers found an echo in the sequential performance, with TCS reporting a 2.5% QoQ drop in profits in the third quarter of fiscal 2024, while that of Infosys declined 1.7%. Meanwhile, revenue dropped 0.4% sequentially for Infosys, while it rose 1.5% for TCS.

At the post-results briefings, senior executives at the top two software exporters said there were few signs of recovery in global demand for technology services, which has been buffeted by macroeconomic and geopolitical uncertainty for nearly two years now.

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Infosys Narrows Revenue Forecast

Infosys further narrowed its guidance to a maximum of 2% growth in the fiscal year — its slowest in several decades.

TCS and Infosys reported a combined drop of 35,000 in headcount since the third quarter of previous fiscal even as the industry leaders battle a talent crisis in their senior ranks.

TCS chief executive officer K Krithivasan said that “the optimism around interest rates” has not resulted in a reduction of the uncertainty in decision-making.

“The sentiments have remained the same so I don’t think we are ready to say that it will recover by Q4,” he said, pointing out that the largest vertical of banking and financial services, and North American businesses continued to shrink as some major projects ended during the quarter.

TCS saw revenue increase 4% to Rs 60,583 crore for the October to December quarter while sequentially the rise was 1.5%. The company surpassed ET estimates on revenue while missing them on net profit. It declared an interim dividend of Rs 9 per share and a special dividend of Rs 18 per share.

Elsewhere, Infosys tightened its revenue growth guidance for FY24 to 1.5% to 2% in a third consecutive revision (from 1-2.5% projected in the last quarter and 4-7% at the start of FY24). It maintained its operating margin guidance at 20% to 22% from the previous quarter. TCS does not give a full-year outlook.

“At this stage, we have not seen any different behaviour from clients. Typically, Q3 is a quarter with large furloughs and with end-of-year holidays, which we have seen continue. We’ve not seen either an increase or a decrease…Digital programs are fewer, cost and efficiency, automation is much more,” said Salil Parekh, CEO and MD of Infosys.

The Bengaluru-based company saw revenue rise by 1% YoY to Rs 38,821 crore in the December quarter. ET’s analyst projections expected Infosys’ Q3 net profit to decline by nearly 8% at Rs 6,078 crore, while revenue was expected to rise by about 1% to Rs 38,641 crore.

TCS shares ended marginally higher by 0.61% at Rs 3736.20 per share on Thursday, after it had risen over the past few weeks on expectations of business improvement, especially following the US Federal Reserve’s softening stance.

Infosys shares ended weaker by 1.6% at Rs 1495 apiece. The numbers were announced post market hours on Thursday.

Top executives at both companies spoke extensively about the promise of AI, while noting that it was early days for the new technology with revenues still relatively small.

Business challenges

The BFSI business vertical was under pressure at both the firms with a 3% drop and 5.9% decline for TCS and Infosys, respectively. The strongest geography North American market continues to remain weak for both the IT giants witnessing increasing business from European, UK and emerging markets.

The executives maintained that clients continue to remain cautious on making digital spends with focus on cost efficiency.

TCS, however, reported strong margins of 23.4% led by productivity gains of 60 bps and a favourable rupee (25 bps) despite a one-time hit of $125 million due to legal expenses regarding a lawsuit. Operating margin for Infosys was at 20.5%, down from 21.2% in the previous quarter and 21.5% a year ago, largely impacted by the employee wage hikes given in November partially offset by a depreciating rupee and a one-time hit by a cyber-attack on its US unit McCamish Systems.

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