TCS Q1 RESULTS 2024: MIXED SET OF NUMBERS REPORTED

TCS has kicked off the earnings season, and the results for Q1 are in-line with expectations, which were muted due to weak demand in the US. Let us look at the quarterly numbers in detail.

About TCS

Tata Consultancy Services (TCS) is a global IT services and consulting company headquartered in Mumbai, India. It is one of the largest IT services firms in the world, providing a wide range of services, including software development, infrastructure management, and business process outsourcing.

Crucial parameters

• PE Ratio: 30.50
• Sector PE: 25.81
• Dividend Yield: 3.53%
• Promoter Holding: 72.30% (March 2023)

Share price movement

After the result announcement on Wednesday, the TCS share price jumped over 2% on Thursday. However, in the six-month period, the TCS shares have traded flat.

In the last one year, the share price has given over 10% to investors, and in the 5-year period, the return has been only 70%, which is largely because of recent poor performance by the overall sector.

TCS Latest Quarterly results Q1FY24 details

Revenue: The company reported revenue of Rs 59,381 crore in Q1FY24, a growth of 12.6% YoY. The revenue increased by 7% in constant currency terms. Growth was led by Life Sciences and Healthcare, which grew at 10.1%, and the Manufacturing vertical, which grew at 9.4%. BFSI grew by 3%, and Retail and CPG grew by 5.3%.

Among major markets, the United Kingdom led with 16.1% growth, North America grew at 4.6%, and Continental Europe grew at 3.4%. In emerging markets, Middle East & Africa grew 15.2%, India grew 14%, Latin America grew 13.5%, and Asia Pacific grew 4.7%. 

Profit: TCS reported a net profit of Rs 11,074 crore in Q1FY24 compared to Rs 9,478 crore in Q1FY23, a growth of 16.8% year on year. Compared to the March quarter (sequentially), the profits have declined by 3%. 

Order Book: The company has a strong order book of $10.2 billion and a book-to-bill ratio of 1.4. The book-to-bill ratio compares the value of orders received or booked during a quarter to the value of products or services actually shipped or billed during the same period. A book-to-bill ratio greater than 1 indicates that a company received more orders during the period than it billed, which generally implies a positive outlook for future revenue.

Other crucial updates: Operating Margin for the quarter stood at 23.2%, an expansion of 0.1% year on year. The margins have remained muted for some quarters now. The net headcount was also flat, with 523 additions, which took the total headcount to 615,318. IT services attrition dipped further in Q1 and was at 17.8% for the last twelve months. The company rolled out its annual salary increase across its workforce, with effect from April 1, 2023, which may impact the margins.

Dividend: The board has approved an interim dividend of Rs 9 per share with a record date of July 20, 2023, and a payment date of August 8, 2023.

Management: "It is very satisfying to start the new fiscal year with a string of marquee deal wins. We remain confident in the longer-term demand for our services, driven by the emergence of newer technologies. We are investing early in building capabilities at scale on these new technologies, and in research and innovation, so we can maximize our participation in these opportunities.", CEO, TCS.

To sum up

The market has taken the results positively, as the share price has jumped - the expectation is not high from the IT companies for this quarter. TCS has not given any hint of recovery in the second half of the year. 

The weakness persists in verticals like BFS, Communication, and Retail due to a slowdown in discretionary spending (the growth was in the low-single digits). The worst for TCS and other companies is still not over, and we may continue to see muted numbers for at least two more quarters. However, FY25 looks promising based on the strong order book.