Robust demand boosts India's TCS in slowing sector

Robust demand boosts India's TCS in slowing sector
by AFP Staff Writers
Mumbai (AFP) July 12, 2023

India's biggest software firm Tata Consultancy Services reported subdued but better-than-expected profits for the June quarter on Wednesday as economic uncertainty in key client markets weighed on the IT sector.

The Mumbai-headquartered company earns more than 80 percent of its revenues from Western markets and the results reflect tough global conditions for the industry in what is usually a strong reporting quarter.

TCS, India's second-most valuable company by market cap, reported a net profit of 110.7 billion rupees ($1.35 billion) in the three months to June 30.

The quarterly result was up 16.8 percent year-on-year but down 2.79 percent from the March quarter, still above analyst expectations on the back of a robust order book.

"We had a good quarter given current market uncertainties," chief executive K. Krithivasan told a media briefing, adding that TCS expected some near-term softness in demand.

"Some of the programmes which are not very business-critical or the ROI (return on investment) is not very high, those programmes are getting paused or delayed, or sometimes they run on a lower capacity," he said.

Inflation and interest rate rises have led clients to cut back on discretionary spending.

Even so, the company reported an order book of $10.2 billion for the April-June period, marginally above $10 billion in the March quarter and $7.8 billion in the final three months of 2022.

TCS was boosted by 16.1 percent growth in its UK market, while North America and Europe grew by 4.6 percent and 3.4 percent respectively, Krithivasan said.

Revenue from operations was 593.8 billion rupees ($7.2 billion), a 12.6 percent on-year increase.

Employee attrition, a key metric for software companies, declined to 17.8 percent from 20.9 percent in the first three months of the year.

TCS said it was building capabilities in newer technologies such as generative artificial intelligence, where systems such as ChatGPT and Dall-E produce text, images and other media.

The board approved an interim dividend of nine rupees per share.

Alongside other software companies, TCS has reaped the benefits of a technology boom that positioned India as the world's back office for subcontracted work.

The Covid-19 pandemic was also a boon for the sector amid growing demand for digital services.

TCS shares closed 0.36 percent lower in Mumbai on Wednesday ahead of the earnings announcement.