IT Q3 FY24 Results: TCS, Infosys Navigate Challenges

Tata Consultancy Services (TCS) and Infosys, kicked off the earnings season with their financial reports for the December quarter. Traditionally a seasonally weak period for the IT sector, this quarter faced additional headwinds due to the ongoing economic slowdown in the US and Europe, which are crucial revenue sources for software services exporters.

TCS reported a 4 per cent year-on-year increase in revenue to Rs 60,583 crore, with a net profit decline of 2.5 per cent sequentially to Rs 11,058 crore. Infosys experienced a 0.4 per cent decline in revenue to Rs 38,821 crore, coupled with a 1.7 per cent sequential drop in net profit to Rs 6,106 crore. TCS saw a 1.7 per cent year-on-year growth in revenue in constant currency terms, while Infosys saw a 1 per cent decline.

The Banking, Financial Services, and Insurance (BFSI) vertical, a significant revenue source for both companies, experienced challenges. TCS, receiving about 37 per cent of its revenue from BFSI, saw a 3 per cent drop in this segment. Infosys, relying on about 28 per cent of its revenue from BFSI, encountered a steeper 6 per cent decline in constant currency terms.

Operational performance varied between the two giants. TCS showcased an expansion in the EBIT margin by 70 basis points sequentially to 25 per cent, attributed to a heightened focus on execution and operational efficiencies. Conversely, Infosys faced a contraction in profitability, with the EBIT margin decreasing by 70 basis points sequentially to 20.5 per cent, primarily due to the impact of wage hikes.

During the December quarter, the momentum in deal wins slowed down for both TCS and Infosys, with Infosys witnessing a more substantial impact. TCS secured deals totaling USD 8.1 billion in Q3, marking a decline from the USD 11.2 billion worth of deals secured in the preceding September quarter. Meanwhile, Infosys clinched notable deals amounting to USD 3.2 billion in the December quarter, reflecting a reduction to less than half of its achievements in the September quarter.

Attrition rates showed a positive trend for both companies. Infosys reported a sharp reduction from 14.6 per cent in the September quarter to 12.9 per cent in the December quarter. TCS also witnessed a decline in attrition, with the rate decreasing from 14.9 per cent to 13.3 per cent for the last twelve months.

In the third quarter of FY24, Infosys witnessed a decrease in its headcount by 6,101 employees, resulting in a total workforce of 3,22,663. Similarly, on the same reporting day, TCS revealed a sequential reduction in headcount, with a decrease of 5,680 employees. This simultaneous workforce adjustment by two major IT firms highlights a prevailing dynamic within the industry. TCS's overall headcount now stands at 6,03,305, indicating a net decline of 5,680 employees during the quarter.