TCS Q1 results: From PAT, deals to margins, 10 key highlights of the earnings

On BSE, TCS shares closed at 3,264.85 apiece down by 22.10 or 0.67%.

Aditi Patil- Research Associate at Prabhudas Lilladher on TCS said, “miss on both revenue and margins.” According to Patil, the company’s revenue grew by 1.3% QoQ in dollar terms (PLe: 2%, Cons: 1.5%) and 3.5% QoQ in CC terms (Ple: 4%, Cons: 3.6%). In dollar terms, growth was led by Retail and CPG (+4.5% QoQ), Communications & Media (+2.9% QoQ), Tech Services (+2.4% QoQ), Lifesciences and Healthcare (+2.3% QoQ). BFSI grew 1.9% QoQ. Growth was muted in Manufacturing (0.2% QoQ). Further, EBIT margin came at 23.1%, decline of 190bps QoQ (Ple: 24%, Cons: 23.5%).

Mitul Shah- Head of Research Associate at Reliance Securities said, “TCS reported a subdued performance in 1QFY23 with EBIT margin coming in at 23.1%, 60bps below our estimate of 23.7%” adding, “EBIT de-grew by 4% QoQ (up 5% YoY) to Rs121.8bn while EBIT margin stood at 23.1% (down 186bps QoQ /down 242bps YoY), 60bps below our estimate of 23.7% (Consensus 23.5%).”

Here are the 10 key highlights from the earnings. 

1. Consolidated earnings:

Consolidated revenue from operations stood at 52,758 crore in Q1FY23 compared to 45,411 crore in Q1FY22 and 50,591 crore in Q4FY22. Constant currency revenue growth is at 15% yoy. Profit after tax (PAT) was at 9,478 crore up from 9,008 crore in Q1FY22. Compared to March 2022 quarter, PAT declined from 9,959 crore.

 Earnings per share are at 25.90 compared to 24.35 per share in Q1FY22.

2. Margins:

In Q1FY23, the company’s net margin stood at 18%. While its operating margin dipped 2.4% yoy to 23.1% in the quarter.

Samir Seksaria, Chief Financial Officer of TCS said, “It has been a challenging quarter from a cost management perspective. Our Q1 operating margin of 23.1% reflects the impact of our annual salary increase, the elevated cost of managing the talent churn, and gradually normalizing travel expenses. However, our longer-term cost structures and relative competitiveness remain unchanged, and position us well to continue on our profitable growth trajectory.”

3. Strong order book:

TCS order book continued to be robust in the quarter under review. The company posted an order book of $8.2 billion. It had stellar client metrics. In Q1FY23, TCS added 9 new clients into the over $100 million band yoy, while 19 clients added to the over $50 million band.

4. Standalone earnings:

The company’s revenue from operations came in at 44,480 crore in Q1FY23 increasing from 37,722 crore in Q1FY22 and 42,459 crore in Q4FY22. PAT jumped to 8,588 crore from 8,281 crore in Q1FY22, however, declined from 9,795 crore in the preceding quarter.

5. Double-digit growth across industries:

Growth was led by Retail and CPG (25.1%), Communications & Media (+19.6%), Manufacturing vertical (+16.4%) and Technology & Services (+16.4%). BFSI grew +13.9% while Life Sciences and Healthcare grew +11.9%.

6. Geographical performance:

TCS stated that among major markets, North America led with over 19.1% growth; Continental Europe grew over 12.1% and the UK grew over 12.6%. In emerging markets, India grew over 20.8%, Asia Pacific grew over 6.2%, Latin America grew over 21.6%, and the Middle East & Africa grew 3.2%.

7. Services:

TCS said there was strong, broad-based demand across the different services, led by Cloud, Consulting & Service Integration, Cognitive Business Operations, and Enterprise Application Services. Key themes driving G&T demand in Q1 were customer experience, cloud transformation, and sustainability.

8. Employees Base:

In the quarter, TCS touched a milestone with employees’ headcount In the quarter, TCS touched a milestone with employees’ headcount crossing the 6 lakh mark. As of June 30, 2022, the company’s headcount stood at 606,331 with a net addition of 14,136 during the quarter. The workforce continues to be very diverse, comprising 153 nationalities and with women making up 35.5% of the base.

TCS gradually accelerated its return to office program in Q1, with about 20% of the workforce now working from the office. IT services attrition was 19.7% on the last twelve months basis.

9. Research and Innovation:

As of June 30, 2022, the company has applied for 6,752 patents, including 169 applied during the quarter, and has been granted 2,400 patents.

10. Dividend:

TCS declared an interim dividend of 8 per equity share having a face value of Re 1 each to its shareholders. TCS announced July 16 as the record date to identify eligible shareholders for the dividend payment. Following this, TCS has fixed August 3 as the date for paying the dividend to these shareholders.

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