TCS profits grows at 5%, hit by salary hikes, talent churn and travel costs

• Tata Consultancy Services or TCS posted a 5% growth in net profits in the first quarter of FY23 at ₹9,478 crore.
• On a quarter on quarter comparison, its profits fell by 5% as it was hit by increased costs across streams.
• TCS’ CEO Rajesh Gopinathan too said that it started the new fiscal year on a ‘strong note’ and a good deal wins.

Tata Consultancy Services or TCS posted a 5% growth in net profits in the first quarter of FY23 at ₹9,478 crore as compared to the same period last year, which was at ₹9,008 crore.

However, on a quarter on quarter comparison, its profits fell by 5% as it was hit by increased costs across streams — like travel expenses in addition to employee benefit costs. The company’s profit grew by 5% compared to last year.

“It has been a challenging quarter from a cost management perspective. Our Q1 operating margin of 23.1% reflects the impact of our annual salary increase, the elevated cost of managing the talent churn and gradually normalizing travel expenses,” said Samir Seksaria, CFO of TCS.

These costs loaded on to the company’s books and took the sheen off 16% revenue growth on a year-on-year comparison. The company however insists that their long-term cost structures and competitiveness remain unchanged.

Don’t see an immediate footprint of recession

TCS’ CEO Rajesh Gopinathan too said that it started the new fiscal year on a ‘strong note’ and a good deal wins. Its total order book stood at $8.2 billion.

“Pipeline velocity and deal closures continue to be strong, but we remain vigilant given the macro-level uncertainties. Looking ahead, we remain confident in the resilience of technology spending and the secular tailwinds driving our growth,” said Gopinathan.

When asked about the possibility of recession and its impact on the company, Gopinath said that the top management is having serious discussions on recession. “We do not see an immediate footprint of it in the near term,” he said at the press conference.

TCS also declared an interim dividend in the quarter. “We would like to inform you that at the board meeting held today (on Friday), the directors have declared an interim dividend of ₹8 per equity share of ₹1 each of the company," the company said in the BSE filing.

Table: TCS’ first quarter of FY23 in numbers

Source: Company reports

Wage hikes, currency volatility and a potential slowdown in international markets like US and Europe could impact the results of the Tata Group subsidiary, a report by Emkay had predicted. Increasing visa and travel costs, along with supply chain pressures, could affect the operating margins.

In spite of pricing in these events, TCS’s profits missed analyst expectations of many brokerages like Motilal Oswal, Emkay Global, Edelweiss and Prabhudas Lilladher.

TCS shares fell by nearly 15% in value ever since the start of this year, and they closed at ₹3,264 on July 8. The company’s share price declined 13% in April-June 2022, performing better than the Nifty IT index’s 23.14% drop in the same period.

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