TCS Reports 12% Increase in Q3 Net Profit to Rs 12,380 Crore Despite Employee Count Decline

India's largest IT services firm, TCS, reported a 11.95% rise in net profit for the December quarter, reaching Rs 12,380 crore. This is an increase from Rs 11,058 crore in the same period last year and Rs 11,909 crore in the previous September quarter. Revenue grew by 5.6% to Rs 63,973 crore compared to Rs 60,583 crore a year ago but decreased from Rs 64,259 crore in the September quarter.

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The company's new order bookings reached USD 10.2 billion, up from USD 7.9 billion in the previous year. This growth occurred despite the typically challenging holiday season. CEO K Krithivasan noted ongoing macroeconomic challenges but highlighted that new orders spanned various industries and regions, providing long-term growth visibility.

Revenue and Market Performance

Krithivasan mentioned early signs of a revival in discretionary spending, which had been limited earlier in the fiscal year. He expects discretionary spending to rise and anticipates a better performance in 2025 compared to 2024. Although Q3 saw negative revenue growth in major markets, emerging markets contributed positively.

In India, revenue surged by 70%, now accounting for over 9% of total revenue. The BSNL deal has been a significant contributor but is expected to decline soon. However, Krithivasan expressed confidence that global operations would compensate for this decrease.

Sector Contributions and Challenges

Banking, financial services, insurance, and consumer businesses are showing growth. These sectors contributed USD 3.2 billion and USD 1.3 billion in new orders respectively. However, there were setbacks with top clients due to divestitures, planned spending reductions, and currency fluctuations.

Operating profit margins remained at 24.5%, consistent with last year but improved from the previous quarter's 24.1%. CFO Samir Seksaria attributed this margin improvement to efficiency gains and aims to reach a target range of 26-28%.

Workforce Adjustments and Technological Impact

The workforce reduced by over 5,000 employees during the quarter, bringing the total to 6.07 lakh as of December. Attrition in IT services rose slightly to 13%. CHRO Milind Lakkad cited higher utilisation and productivity gains as reasons for workforce reduction.

Krithivasan downplayed concerns about generative AI affecting jobs, stating it would create more jobs overall despite changing job profiles. He noted that Gen AI is now part of all major deals, comprising up to 10-12% of work.

Campus hiring is on track with plans for recruiting 40,000 individuals in FY25, with expectations to exceed this number next year.

Financial Decisions and Market Reactions

The board declared a dividend of Rs 76 per share, including a special dividend of Rs 66 per share, resulting in a payout exceeding Rs 21,500 crore. Additionally, TCS announced acquiring land in Bengaluru from another Tata group company for Rs 1,625 crore.

Analysts at Mirae Asset Sharekhan observed mixed results for TCS Q1 due to a larger-than-expected revenue decline during a soft quarter but noted improved margins with better deal wins.

TCS shares fell by 1.72% to Rs 4,036.65 on the BSE on Thursday compared to a broader market correction of 0.68%.