TCS misses forecasts, while profits increase by 4% in the third quarter.

Tata Consultancy Services (TCS), the country’s largest IT services firm, missed earnings forecasts for the December quarter on Monday. During October-December, the company’s net profit increased by 4% quarter on quarter to Rs 10,846 crore, compared to the Bloomberg consensus forecast of Rs 11,064.90 crore.

Revenues, on the other hand, exceeded projections of Rs 57,207.70 crore and increased 5.3% year on year to Rs 58,229 crore, owing to digital-led growth.

Dollar revenue for the December quarter increased 13.5% year on year to $7.08 billion, surpassing the $7-billion quarterly sales record. This is despite the fact that Q3 is a seasonal poor quarter owing to furloughs or a lesser number of working days due to vacations.

In addition, the business declared a special dividend of Rs 67 per share and an interim dividend of Rs 8 per share.

“We are pleased with our strong performance in a seasonally weak quarter, which has been driven by cloud services, market share increases through supplier consolidation, and continued momentum in North America and the United Kingdom.

The continued strength of demand for our services validates the value we bring to our clients by assisting them in differentiating themselves and increasing their competitiveness. Looking ahead, and beyond present uncertainty, our longer-term growth forecast remains strong,” stated TCS CEO and Managing Director Rajesh Gopinathan.

In addition to missing earnings projections, the IT firm reported a decrease in staff numbers in the December quarter. During the quarter, TCS reported a net loss of 2,197 people, bringing the overall headcount to 613,974. The attrition rate has marginally decreased sequentially from 21.5% in the September quarter, indicating that supply-side constraints are progressively reducing.

However, the attrition rate jumped to 21.3% from 15.3% in the previous year, showing an increasing need for IT skills in the business.

During the epidemic, Indian IT businesses reported strong profitability as demand for digital increased. However, peak revenue growth is expected to be behind them, and momentum is projected moderating currently due to a lack of significant contract wins and customers choosing deferring technological investments. Wage increases, greater backfilling costs, and increases in travel, visa, and other discretionary charges are putting pressure on margins.

TCS’ margin for the third quarter fell to 24.5% from 25% a year earlier due to increases in travel and staff expenditures. However, operating margins increased 50 basis points sequentially from 24% in the September quarter due to significant operational savings.