India’s top two IT companies were off to a mixed start in Q3FY24, marked by high seasonal furloughs, fewer work days, and no immediate impact of interest rate cuts. Management, while addressing their respective press conferences, indicated that the global macroeconomic environment is still subdued and discretionary spending is still off the hook.
While Tata Consultancy Services posted a year-on-year (YoY) increase of 2 percent in net profit to Rs 11,058 crore in the quarter ended December 31, 2023, its nearest rival Infosys Ltd, reported a 7.3 percent YoY fall in net profit at Rs 6,106 crore in the third quarter of FY24.
Both figures were below Moneycontrol’s consensus poll estimates.
On the revenue front, both companies fared well on a YoY basis. India’s largest IT services exporter recorded a rise of 4 percent to Rs 60,583 crore in Q3FY24, beating Moneycontrol’s consensus estimate of Rs 59,662 crore.
Infosys, too, beat analyst estimates for the topline marginally at Rs 38,821 crore, which was 1.3 percent higher YoY.
TCS CEO K Krithivasan said the optimism around interest rates have not resulted in a reduction of macroeconomic uncertainty that companies have been witnessing in decision-making. "The sentiment has remained the same, so I don’t think we are not ready to say that it will recover by Q4,” Krithivasan said.
On its part, Infosys said digital programmes have reduced over the last few quarter and it is a wait-and-watch scenario on how the global economic environment turns out, implying that demand uncertainty continues.
Infosys tightened its revenue guidance for the full year to 1.5-2 percent from 1-2.5 percent.
Operating margins or earnings before interest and tax calculated as a percentage of revenue, was a mix for both companies.
TCS’ operating margin rose by 50 basis points to 25 percent YoY, while Infosys’ EBIT margin was down 70 bps to 20.5 percent. Infosys said its margins took a beating because of furloughs, salary hikes, and a cyber-security issue that erupted in the US.
On November 3, Infosys’ US unit, Infosys McCamish Systems, was impacted by a cyber-security attack, resulting in the non-availability of certain applications and systems.
On the deal wins front, TCS reported total contract value (TCV) worth $8.1 billion, missing the company’s quarterly deal win guidance of $9-10 billion. Infosys’ reported a TCV of $3.2 billion, which is lower than last quarter’s record $7.7 billion.
Headcount for both the companies dropped by a huge number in the December quarter.
Infosys saw its headcount shrink by 6,101 for the quarter ending December 31, ending the quarter with 322,663 employees. TCS also saw its headcount plunge by 5,680 on a net basis in the third quarter of FY24, with the employee count standing at 603,305.
This is the fourth consecutive quarter when Infosys recorded a drop in employees, while this is the second consecutive quarter for TCS seeing a headcount decline.
Also read: Infosys to skip campus hiring again, TCS to resume from FY25
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