TCS Q2 FY24: 8.7% Net Profit Growth, Revenue Falls Below Expectations

Tata Consultancy Services (TCS) reported its Q2 FY2024 financial results on Wednesday. The company's net income for Q2 FY24 reached Rs 11,342 crore, marking an 8.7 per cent year-on-year (YoY) increase.

TCS' revenue reached Rs 59,692 crore, reflecting a YoY growth of 7.9 per cent in Q2. The company's constant currency revenue growth stood at +2.8 per cent YoY.

It's noteworthy that TCS's net profit of Rs 11,342 crore fell slightly short of market expectations. Analysts had been anticipating a net profit of Rs 11,400 crore, and the consolidated revenue, which reached Rs 59,692 crore, also missed the street's expectations of Rs 60,100 crore.

TCS's net margin, calculated as a percentage of revenue, remained at 19 per cent.

"This is a quarter where we displayed strong execution in the face of continued macroeconomic uncertainty... Our disciplined execution across multiple margin levers helped us achieve an operating margin of 24.3 per cent. This represents a sequential margin expansion of 110 basis points translating to Rs 14,483 crore of operating profit." - TCS CEO K Krithivasan on Q2 FY24

The operating margin for the period reached 24.3 per cent, showcasing a YoY expansion of 0.3 per cent. 

One of the notable highlights from the financial report is TCS's cash flow performance. The company generated Rs 11,823 crore in net cash from operations, a 104.2 per cent of its net income. This indicates a strong ability to convert earnings into cash, ensuring financial stability.

Deal Wins

TCS order book for the quarter stood at USD 11.2 billion, up from USD 8.1 billion in Q2 FY23. This is the third consecutive quarter of more than USD 10 billion in order book for the company. The quarter saw TCS add two mega deals of JLR and BSNL in its deal kitty. This represents a sequential growth of 10 per cent and YoY growth of 38 per cent TCV.

“Our clients continue to entrust us with critical new technology initiatives, and large programs to digitally transform their IT and business operating models. Strong deal momentum delivered us a very large order book in Q2, our second highest TCV ever in a quarter and a good pipeline,” said K Krithivasan.  

The growth was primarily fueled by the UK market, with a YoY increase of approximately 10.7 per cent in constant currency (CC) terms. Among significant markets, North America saw a modest growth of 0.1 per cent, and Continental Europe experienced a 1.3 per cent increase. In emerging markets, there were notable gains, with the Middle East and Africa growing by 15.9 per cent, India by 3.9 per cent, Latin America by 13.1 per cent and Asia Pacific by 4.1 per cent.

However, certain key segments faced challenges. In constant currency terms, YoY growth in banking, financial services and insurance (BFSI) declined by 0.5 per cent. Communications & Media declined by 2.1 per cent and Technology & Services declined by 2.2 per cent. On quarterly basis, manufacturing witnessed a substantial growth of 5.8 per cent, while Life Sciences and Healthcare exhibited a growth rate of five percent. There were persistent challenges in segments like BFSI and communication, indicating ongoing pressure in those areas.

Human Resources

The company reported providing 26.4 million learning hours and empowering employees with 2.6 million competencies Year-to-Date (YTD). 

TCS also disclosed a Last Twelve Months (LTM) IT Services attrition rate of 14.9 per cent.

Dividend

For shareholders, the company announced a dividend of Rs 9 per share. The dividend's record date is set for 19 October 2023, with the payment date scheduled for 7 November 2023. 

Generative AI

In the Q2 FY24 results press conference, CEO Krithivasan unveiled significant developments in the company's approach to Generative AI. The CEO highlighted the launch of AI.cloud business unit, marking a pivotal moment in the convergence of cloud computing, data, and artificial intelligence (AI) technologies. 

The move is in response to growing demand from TCS customers who seek to leverage the potential of cloud migration, composite data foundation, application modernisation, workplace transformation and edge-to-cloud integration—all powered by AI and machine learning (AI/ML). TCS is building on its existing partnerships with leading hyperscale cloud providers and AI partners to deliver exceptional value to its clients.

Krithivasan highlighted that TCS is actively involved in over 250 Generative AI-powered projects with its clients. To further assist customers in accelerating their Generative AI adoption, the company has developed a catalog of use cases. The company has already invested in readiness training for its workforce, with 100,000 associates completing initial Generative AI training. Ongoing efforts are in place to ensure that TCS remains at the forefront of AI technology.

Additionally, TCS is focusing on advancing research and development (R&D) in the AI space. In Q2 FY24, the company applied for 218 patents and was granted 149, exceeding the numbers from Q1.

Also Read: TCS Q2 FY24: Generative AI Update