Market reaction varied as TCS shares rise and Infosys faces decline
India’s leading IT players, Infosys and TCS, kicked off the earnings season with a mixed bag, reflecting the current global economic slowdown. While TCS managed a cautious 2% year-on-year net profit increase, Infosys faced the brunt, reporting a 7.3% drop in profits compared to last year. The IT sector, heavily reliant on revenue from the US and Europe, faced hurdles due to a global economic slowdown, impacting software services exporters.
Both companies witnessed a decline in deal wins, with Infosys experiencing a more significant setback. Revenue from the Banking, Financial Services, and Insurance (BFSI) vertical dropped for both TCS and Infosys, with Infosys facing a steeper decline.
India’s IT leaders have indicated that the macro environment is tough, and their clients are exercising caution in spending. Attrition rates have been contained, but workforce additions have been minimal, with over 11,000 employees leaving both firms.
Infosys, the country’s second-largest IT services company, revised its revenue growth guidance for the third straight quarter, now expecting a growth rate of 1.5 to 2 per cent for FY24. TCS does not provide revenue guidance.
Indian IT titan Infosys reported a net profit of Rs 6,106 crore for the third quarter, marking a concerning 7.3% drop from the same period last year. In contrast, its larger rival TCS, navigating a “soft quarter”, exhibited a resilient 2% rise in year-on-year net profit, reaching Rs 11,058 crore.
This divergence was further reflected in revenue figures. Infosys’ Q3 revenue dipped 1% year-on-year in constant currency terms, reaching Rs 38,821 crore. Meanwhile, TCS, demonstrating relative stability, reported a revenue growth of 1.5% quarter-on-quarter and a 4% year-on-year growth, with revenue topping Rs 60,583 crore.
Top management commentary from both companies revealed uncertainty in client budget spends. TCS CEO and MD, K Krithivasan, stated, “We see no major change in the sentiment from the last quarter.” Infosys CEO and MD, Salil Parekh, echoed similar sentiments, stating that they do not see any change in dynamics from the last quarter.
Despite a 70 basis points sequential expansion in Earnings before interest and taxes (EBIT) margin to 25%, Infosys faced a contraction of 70 bps sequentially to 20.5% due to the impact of wage hikes and furloughs. Infosys retained its margin guidance of 20-22% for the current financial year ending March 2024.
The BFSI vertical, a significant revenue contributor for both companies, witnessed a 3% drop in revenue for TCS and a steeper 6% drop for Infosys in constant currency terms.
Attrition rates saw a decline for both companies, with Infosys at 12.9% in the December quarter, down from 14.6% in the September quarter, and TCS at 13.3% for the last twelve months, down from 14.9% a quarter ago.
Ahead of the earnings announcement, TCS shares ended 0.6% higher on the National Stock Exchange at Rs 3,735.55, while Infosys shares were the worst hit on Nifty 50, ending 2% down at Rs 1,494.20. The results reflect the challenging landscape faced by India’s IT sector, emphasising the need for resilient strategies in navigating global economic uncertainties.
