Q1FY24 Results Highlights: TCS, HCL Tech shares in focus tomorrow after muted June quarter earnings

Analysts say that TCS and HCL Tech results would give cues for other IT majors in the current earnings season.

Vinod Nair, Head of Research at Geojit Financial Services said that the range-bound movement in the Indian indices today was influenced by the likelihood of subdued IT earnings while optimism about moderation in US inflation supported the broad index.

Wipro, the fourth largest Indian player in the global IT services sector, is expected to report a dull quarter with a sequential decline in all major financial metrics. The tech player is expected to report a revenue of ₹23,014 crore in Q1FY24 according to an average of the estimates of domestic brokerage firms.

TCS, HCL Tech shares in focus on July 13 after muted June quarter earnings.

‘’We experienced double-digit YoY growth, in our largest verticals - Financial Services, Manufacturing, and Life Sciences and Healthcare fueled by large deals,'' said C Vijayakumar, CEO at HCL Tech.

‘’These large deals helped offset cuts in client discretionary spend in these verticals. We are expecting other verticals to pick up as well shortly. This combined with the strength of our record-high pipeline enables us to maintain our guidance for the year." added C Vijayakumar.

"HCLTech continues to be a partner of choice for global enterprises and is well placed to leverage opportunities in emerging areas such as AI and allied technologies despite the challenging global macro environment," said Roshni Nadar Malhotra, Chairperson at HCLTech.

On July 12, shares of HCL Tech settled 0.42 per cent lower at ₹1,110.05 apiece on the BSE.

“In Q1FY24, our revenue and people strength sequentially moderated in line with the demand environment. These large deals helped offset cuts in discretionary spending in these verticals. We are expecting other verticals to pick up as well shortly,” said C Vijayakumar, CEO and MD HCLTech.

According to the FY24 guidance, the company revenue growth is expected to be between 6 percent-8 percent year-on-year in constant currency. Constant currency services revenue growth is expected to be between 6.5-8.5 per cent. EBIT margin guidance retained at 18-19 per cent. 

HCL Technologies has announced second interim dividend for the financial year FY24 on Wednesday. The company will pay a dividend of Rs.10 per equity share of Rs.2 each of the company for the Financial Year 2023-24. The payment date of the said interim dividend shall be August 1, 2023.

"The record date of July 20, 2023 fixed for the payment of the aforesaid interim dividend has been confirmed by the Board of Directors. The payment date of the said interim dividend shall be August 1, 2023," HCL Tech said in a regulatory filing to the stock exchanges.

HCL Tech reported a further decline in its attrition rate to 16.3 per cent from from 19.5 per cent in the preceding March quarter of fiscal 2022-23. During Q1FY24, HCL Tech hired 1,597 freshers which was a significant drop from 4,480 it hired in the March quarter.

The number of additions of freshers in the company has been inconsistent as it dropped from the high of 10,339 in September 2022 to 5,892 in December 2022.

India’s third largest IT services firm HCL Tech reported 7.6 per cent year-on-year (YoY) growth in net profit in the first quarter of fiscal 2024 ended on June 30, 2023. However, the company missed Street estimates and reported a decline in net profit when compared sequentially due to ramp downs in deals and verticals like Hi-tech and telecom.

Tech spend in long term is likely to be strong and is validated by the TCV we have. The pipeline remains strong given clients continue to invest in tech, but there is softness in the near term, said TCS CEO K Krithivasan in a post-earnings press conference.

TCS reported an order book of $10.2 billion for the first quarter of fiscal year 2024. Beating macro headwinds in the UK, the IT major surpassed its quarterly deal win guidance of $7-9 billion. The total contract value (TCV) for Q1 was up by 24.39 per cent on a year-on-year (YoY) basis as compared to $8.2 billion reported in Q1FY23. Last quarter, its TCV stood at $10 billion.

Among the industrial segments, TCS said growth was led by life sciences and healthcare which grew 10.1 per cent and the manufacturing vertical grew 9.4 per cent during the quarter.

The BFSI (banking, financial services and insurance) segment saw a mild growth of 3 per cent, while retail and CPG grew 5.3 per cent. Technology and services grew 4.4 per cent while communications and media grew 0.5 per cent.

The management said it is confident in the longer-term demand for its services and it is building capabilities in new technologies.

“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 maximise our participation in these opportunities," said K Krithivasan, Chief Executive Officer and Managing Director.

TCS said the United Kingdom (UK) led among major markets, with 16.1 per cent growth while North America grew 4.6 per cent and Continental Europe grew 3.4 per cent in Q1FY24. In emerging markets, Middle East & Africa grew 15.2 per cent, India grew 14 per cent, Latin America grew 13.5 per cent, and Asia Pacific grew 4.7 per cent, the IT major said.

“We have gone ahead and rolled out our annual salary increase with effect from April 1st. Our operating margin of 23.2 per cent reflects the 200-bps impact of this hike, offset through improved efficiencies. At the same time, we continue to make the investments needed to power our future growth, including expansion of our delivery and research infrastructure," said Samir Seksaria, Chief Financial Officer of the company.

The IT major's total workforce stood at 6,15,318 as on June 30, 2023, with a net addition of 523 during the quarter, according to a regulatory filing by TCS to the stock exchanges.

TCS reported a decline in its attrition rate during the June 2023 quarter (Q1 FY24) to 17.8 per cent for the last 12 months. ‘’Our attrition continues to trend down and we expect it to be back in our industry-leading, long term range in the second half of the year,'' said Milind Lakkad, Chief HR Officer, TCS.

The IT major's EBIT or operating profit during the April-June quarter stood at ₹13,755 crore, registering a decline of five per cent from ₹14,488 crore in the preceding March quarter of fisval 2022-23.