 |
|
Tata Consultancy Services (TCS), India's largest software services company, experienced a decline in its quarterly profits during the September quarter. This marked the first time in five years that the company has recorded a sequential decrease in its September quarter earnings. The decline in profits, which had been slipping since the March quarter, was attributed to a doubling of equipment costs and a decrease in revenue from the Americas.
The company reported a net profit of $1.43 billion for the quarter, a 1.59% decrease from the preceding quarter. Despite the decline in profits, revenue increased by 2.2% sequentially and 6.38% year-on-year, reaching $7.67 billion. This growth was largely driven by the company's communication, media, and technology business segment, which contributed over 90% of the $165 million incremental revenue.
TCS's equipment costs doubled from the June quarter to $386 million, which was attributed to the company's involvement in setting up data centers across India for Bharat Sanchar Nigam Ltd (BSNL). This project was part of a $1.83 billion order won by TCS in May 2023 for the deployment of a 4G network for BSNL.
The increase in equipment costs led to a decline in operating margins for the first time since September 2019. TCS's profitability narrowed to 24.1%, a decrease of 60 basis points sequentially and 20 basis points from the year-ago period. This decline in margins contributed to the overall profit decline.
Despite the overall decline in profits, there were some positive aspects to TCS's performance. The company's India business, which contributes approximately 9% of its total revenue, saw a significant increase in revenue from domestic clients, contributing 74% of the $165 million incremental revenue during the quarter.
TCS also added 5,726 employees last quarter, bringing its total employee count to 612,724. This increase in headcount suggests that the company is expecting growth in the future.
However, the overall performance of TCS reflects the challenges faced by the broader Indian IT services industry. The industry is grappling with an uncertain macroeconomic environment, and the potential escalation of conflict in West Asia has further cast a shadow on demand recovery. The cautious outlook on demand, particularly for discretionary deals with no immediate return on investment, is a concern for the industry.
TCS's management expressed optimism about the future, citing the easing of interest rate environment, improving consumer confidence, and potential for increased investment. They also emphasized the company's focus on operational efficiency and automation.
Despite the recent decline in profits, TCS remains a significant player in the global technology services industry. The company's commitment to innovation, its strong domestic presence, and its global reach suggest that it is well-positioned for continued growth in the long term.
Source: For the first time since 2019, TCS sees a fall in Sep quarter margins