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PremiumQ1FY24 earnings: TCS reported a 16.84 per cent year-on-year rise in its consolidated net profit (attributable to shareholders of the company) for the fiscal's first quarter ended June (Q1FY24) to ₹11,074 crore. HCL Tech reported 7.6 per cent year-on-year growth in consolidated net profit in the first quarter of fiscal 2024 ended on June 30, 2023. Both tech players missed Street estimates with lower hirings during the quarter, even as the attrition rate declined in the last 12 months declined for both companies.
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.
The company's operating margin decreased from 24.5 per cent in Q4FY23 to 23.2 per cent in Q1FY24, a 130 basis point decline. It increased merely 0.1 per cent year over year.
The IT major's consolidated total income for the quarter ended June increased 13.5 per cent year-on-year to ₹60,778 crore.
On July 12, shares of TCS settled 0.36 per cent lower at ₹3,260.20 apiece on the BSE.
TCS board of directors also declared interim dividend of ₹9 per share. "The interim dividend shall be paid on Monday, August 7, 2023, to the equity shareholders of the Company, whose names appear on the Register of Members of the Company or in the records of the Depositories as beneficial owners of the shares as on Thursday, July 20, 2023, which is the Record Date, fixed for the purpose," TCS said in a regulatory filing to the stock exchanges.
TCS' revenue from operations increased 12.5 percent to ₹59,381 crore in the June quarter from ₹52,758 crore in the corresponding period last year.
TCS reports a net profit of ₹11,074 crore in April-June quarter
In a report on Q1FY24 results, domestic brokerage firm Motilal Oswal expects IT services to deliver a weak median revenue growth (0.4 per cent QoQ/5.3 per cent YoY) in an otherwise seasonally strong quarter.
HCL Tech's discretionary spending in IT has slowed, although offset by mega-deal ramp-up. Pressure from a large deal ramp-up will be offset by operational improvements, said Kotak. It sees HCL Tech's EBIT margins softening 12 basis points (bps) to 21.2 per cent in Q1.
Kotak Institutional Equities expects TCS to report revenue at 59,355.7 crore, rising 13 per net YoY with a net profit at ₹10,983.3 crore, rising 16 per cent YoY but falling 4 per cent QoQ. It sees HCL Tech's revenue to rise 15 per cent YoY to 26,963.2 crore, while profit is seen at 3,886.7 crore, up 18 per cnet YoY but down 2 per cent QoQ.
TCS is expected to report revenue growth of 0.8% on a sequential basis at ₹59,610.4 crore in the quarter ended June 2023. The IT major’s net profit may fall 5.25 QoQ to ₹10,801.4 crore during Q1FY24, as per Antique Stock Broking.
On a year-on-year basis, TCS’ revenue growth is likely to be 13%, while net profit growth at 14%.
We expect the Indian IT companies to report another quarter of flattish revenue growth, while margins might see some improvement on a sequential basis. We expect revenue growth of our coverage universe to be in the range of - 2% to +1% in organic CC terms for the top 5 and -2.0% to +3.0% for midcaps. We expect most companies to maintain revenue growth guidance for FY24, the brokerage said.
TCS remains best positioned to benefit from long-term structural tailwinds in Tech Services and should see a relative pick-up in growth, aided by clients’ focus on cost optimization and efficiencies, said Motilal Oswal Financial Services.
HCL Technologies is one of the key beneficiaries of Cloud adoption at scale, given its expertise in IMS. We expect Infosys to be a key beneficiary of the acceleration in IT spending in the medium term, it added.
With valuations correcting meaningfully over the last one year (IT services sector P/E at 21.1x, down 24% from the peak), we maintain our positive stance on the IT Services sector, supported by a favorable medium- to long-term demand outlook, despite some near-term pain.
We continue to prefer Tier-I players over their Tier-II counterparts, given the former’s attractive valuations, increased traction in vendor consolidation, and diversified client portfolios, the brokerage firm said.
TCS shares were trading flat ahead of the release of June quarter earnings later today. TCS stock traded 0.35% higher at ₹3,283.15 apiece on the BSE.
Among things to watch out for in Q1 for TCS are (1) what kind of margins and working capital cycle will we see in the BSNL deal. How is it planning to piggyback on the BSNL deal to create traction in the Open RAN space abroad (2) why are BFS clients in the US cutting back on discretionary spending despite record profits (3) demand commentary for the rest of FY24 post the new CEO’s meetings with clients.
TCS Q1 results are likely to be weak with no major negative surprises. However, the management’s commentary on order inflows and attrition rate will be keenly watched, said Avinash Gorakshakar, Director Research, Profitmart Securities.
He said that the market will not like any huge margin pressure in Q1, but believes that all the negatives are factored in the stock price. Gorakshakar expects that TCS stock may not go below the ₹3,000-level.
Moreover, any announcement on share buyback will be a key short term trigger for TCS stock.
TCS management continues to see no major change in overall tech spending and demand, though some discretionary projects are being deferred. TCS is witnessing no large technology budget cuts and banks continuing to push ahead with transformation programmes. As highlighted in “IT’s showtime", we see deal-win data as the key metric to judge the demand environment, which seems robust.
In 4QFY23, deal-win TCV (USD10b, book-to-bill: 1.4x) was strong, with a solid deal pipeline and accelerated deal velocity, especially in Europe. With supply-side issues easing and confidence in long-term cost structures, TCS aspires to get EBIT margin back to 26-28%.
Given the heightened uncertainty at Infosys, we think TCS is better positioned to benefit from the shift in customers’ focus to cost-optimization deals and it is our sector top pick. The positive catalysts for BUY-rated stocks are favourable enterprise IT budget decisions, increasing focus on cost reduction, continued acceleration in digital adoption, and traction in generative AI tools and solutions. Hence, we have set a target price of ₹4,050 for TCS.
TCS may announce a share buyback plan on July 12 along with the release of Q1FY24 earnings, reports said.
Last year, the Tata Group-backed company had launched a buyback worth ₹18,000 crore.
India’s largest information technology (IT) services firm, Tata Consultancy Services (TCS), last week had said that it would train 25,000 engineers on generative artificial intelligence (AI) tools and services by AI research firm OpenAI, the makers of popular chatbot, ChatGPT. Generative AI services will be hosted and provided on Microsoft’s Azure cloud platform—thus making this offering available to its clients. Read more here
For India’s technology companies, the first quarter is typically a strong one. However, hopes are running low this time, even as large-cap information technology (IT) companies Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd kick off the June quarter (Q1FY24) earnings season for the sector on Wednesday.
Macro headwinds amid the looming fears of a global recession have weighed on discretionary technology demand in key verticals such as banking, financial services and insurance and high-tech, and important geographies of US and Europe. Read here
Tata Consultancy Service (TCS) has been postponing the onboarding of several lateral hires by at least three to four months, according to a media report. The IT giant has been making lateral hires with 1.8 to 15 years of experience. All these hires had been initially facing a one month delay in onboarding, however, according to the media report, these people are now facing at least a three month delay in onboarding. Read full report here
According to stock market experts, after lower-than-expected fourth quarter growth guidance by Accenture, IT segment in India is expected to remain in base building mode for next one to two quarters and in that case positional investors are expected to start accumulating their preferred IT stocks.
They said that among four Indian IT majors, Infosys had given weak guidance after the fourth quarter results in the previous financial year but TCS and HCL Tech had given better quarterly numbers. They advised positional investors to look at margins, order book intake and rate of attrition. If any of these companies manages to give good news on any of these three front, that is going to become a blue eyed IT stock for both DII and FIIs. Read here
TCS share price slipped into the red after opening higher on Thursday ahead of the release of June quarter results. TCS shares were trading 0.29% lower at ₹3,262.25 apiece on the BSE.
HDFC Securities cust earnings estimates for the IT sector by ~1%, largely due to a lower near term growth trajectory and rollover valuations to Jun-25. It has factored IT sector growth to moderate to 5% in FY24E before recovering to 9% in FY25E. Mid-tier IT growth premium of >500 bps is likely to continue, which is also reflected in the divergence between the trend of earnings estimate.
Nifty IT index valuations have fallen by 5% YTD, while Accenture’s valuations are up by >10% YTD (which has historically been highly correlated). IT sector valuations (at 21.5x) are between 5Y and 10Y averages and earnings are expected to grow at 11% CAGR over FY23- 25E.
It maintains a selective stance on the sector with a preference for LTIMindtree within tier-1 IT and Persistent Systems within mid-tier IT, which remain attractive on a PEG basis.
Due to macroeconomic challenges in the BFSI and Hi-tech sectors, delayed discretionary spending, it is likely that revenue growth will soften during this quarter. Still, cloud computing, digitalization, artificial intelligence, and cybersecurity are the key drivers for revenue in the current challenging circumstances. Recent data suggests that the U.S. technology sector foresees a slowdown in CY23-24 guidance due to drop in deal conversion rate.
During this challenging period, Indian IT companies are focused on enhancing margins through cost optimization and resolving supply-side issues. Looking ahead, we expect higher deal conversion at the start of H2FY24, which will improve revenue visibility.
On the valuation front, over the past 1.5 years, the industry valuations have been corrected by more than a third, limiting the downside risk. Going forward, it presents an opportunity for long-term investors to accumulate in the IT sector.
The Nifty IT index declined over half a percent on Wednesday ahead of the Q1 earnings from IT majors Tata Consultancy Services (TCS) and HCL Technologies. The top draggers on the IT index were Coforge that was down by 1.4%, HCL Technologies (down 0.91%), Infosys (down 0.76%), L&T Technology Services (down 0.67%) and Persistent Systems (down 0.59%). Except for Wipro, all other constituents of the index were in the red.
HCL Technologies share price opened higher on Wednesday ahead of the announcement of its Q1FY24 financial results later today. The stock shares opened at ₹1,117.05 apiece as compared to the previous close of ₹1,114.70 on the BSE.
Shares of IT major TCS opened higher on Wednesday ahead of the announcement of its financial results for the first quarter of FY24 later today. TCS shares opened at ₹3,275.15 apiece as compared to the previous close of ₹3,271.85 on the BSE.
In Q4FY23, TCS posted 14.8% YoY and 5.03% QoQ growth in consolidated net profit to ₹11,392 crore. Revenue from operations stood at ₹59,162 crore up by 16.94% YoY and 1.6% QoQ. Further, the net margins stood at 19.3%, while operating margins came in flat at 24.5%.
HCL Technologies’ adjusted net profit is expected to rise 18.2% YoY and revenue may see a rise of 14.9% YoY. Organic constant currency (CC) revenue growth rate is likely to be at 1% based on 3% QoQ growth in IT services courtesy of ramp-up in mega-deals, 2.5% QoQ revenue decline in engineering research and development and 4.1 QoQ decline in the products segment, according to Kotak Institutional Equities.
The shares of Tata Consultancy Services (TCS) have gained 3% during the April-June period. The stock has remained flat YTD, while it has given only 5% return during the last one year.
As compared to TCS, the Nifty IT index has gained 2.46% YTD, while the index is up 8.35% in teh last one year period.
IT major HCL Technologies will also announce its June quarter earnings today. The company is expected to report a soft set of numbers for the April-June quarter of the current financial year (Q1FY24), mostly because of the slowdown in the demand environment and the impact of cancellations in ER&D (engineering research and development). Read here
