Tata Consultancy Services Ltd.’s second quarter profit narrowly missed street estimates, underscoring how worries about an economic slowdown continue to curtail tech spending.
(Bloomberg) — Tata Consultancy Services Ltd.’s second quarter profit narrowly missed street estimates, underscoring how worries about an economic slowdown continue to curtail tech spending.
Net income rose 8.7% to 113.4 billion rupees ($1.4 billion) in the quarter through September. Analysts, on average, had projected a profit of 114.09 billion rupees. Sales jumped 7.9% to 596.9 billion rupees.
“IT industry growth has moderated and till there’s a certainty on the global economic outlook this moderation will continue because many of the customers will try to conserve cash for a difficult period ahead, if they expect a difficult period,” TCS Chief Executive Officer K Krithivasan said at a news conference in Mumbai on Wednesday. “Once that certainty comes in you’d see growth also. So whether it’s going to be difficult for IT companies specifically is a function of the war or global economic situation.”
TCS leads India’s $245 billion-plus IT services industry, which is bracing for a slowdown as enterprises cut back on technology to cope with high interest rates and inflation. Russia’s continued war on Ukraine has also created economic uncertainty for businesses. Like homegrown rival Infosys Ltd., TCS is also trying to fuel growth through higher-margin digital services.
What Bloomberg Intelligence Says
Elongated sales cycles could continue to weigh on shorter-term consulting deals, especially in the financial and TMT segments. We anticipate management comments to remain conservative regarding near-term demand and don’t expect a rebound through the end of 2024. Operating margins may remain around 24% as easing attrition and lower marketing costs offset slowing revenue. Employee churn might continue to decline with a cooling job market, saving the company recruiting and training expenses. Head count is unlikely to rise from 1Q, a leading indicator of demand.
– Andrew Girard, analyst
Click here for the research.
Separately, TCS approved a buyback of shares worth up to 170 billion rupees.
CEO Krithivasan in June revamped the Mumbai-headquartered company’s structure, seeking to win higher margins from services such as artificial intelligence and cloud computing. Krithivasan took over as CEO after his predecessor resigned earlier this year.
The company has aligned itself along seven business groups that cover sectors from banking, financial and insurance industries to healthcare, energy and retail.
Read more: TCS Revamps Organization Structure to Leverage Domain Knowledge
(Updates to add CEO comment in third paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.