TCS Q3 results: From profitability to dividend; here are key takeaways

TCS, the country’s largest IT company by market capitalisation, has kicked off the December quarter earnings season by releasing its numbers today. The country’s largest software exporter has reported double digit growth in top and bottom line, while it declared a third interim dividend of ₹8 and a special dividend of ₹67 per equity share of ₹1 each for the current fiscal. Ahead of its Q3 results, TCS share price closed 3.35% higher at ₹3,319.7 apiece on the BSE.

Here are five key takeaways from TCS’ Q3 results:

Revenue beats estimates, profit fails to keep pace

In a seasonally-weak December quarter, the Tata Group company reported strong revenue growth, but profit failed to meet D-Street estimates. The growth was led by cloud, cyber security, consulting services and enterprise application services.

TCS has reported a 10.98% rise in its consolidated net profit at ₹10,883 crore as compared to ₹9,806 crore in the December quarter of 2021. On the quarter-on-quarter basis, the net profit rose nearly 4% from ₹10,465 crore in Q2 FY23.

The consolidated revenue from operations jumped 19.11% to ₹58,229 crore, compared with ₹48,885 crore in the corresponding quarter of the previous fiscal.

In constant currency terms, the revenue rose 13.5% year on year (YoY), led by North America and the UK, which reported a growth of 15.4% YoY. 

Margins remain under pressure

The operating margin of the company declined 0.5% to 24.5% as compared to the same period last year. Net margin stood at 18.6%.

Samir Seksaria, Chief Financial Officer, said: “Improved productivity, currency support and abating supplyside challenges helped expand our operating margin in Q3. This gives us greater confidence in our ability to steer our profitability towards our preferred range, while continuing to invest in building newer capabilities to support our growth and market share gains.”

To pay dividend for third straight quarter

The board of directors of TCS has declared a dividend for its shareholders for the third straight quarter. The IT major has proposed to pay an interim dividend of ₹8 and a special dividend of ₹67 per equity share of ₹1 each of the company. So far this fiscal, TCS has declared a total dividend of 1,600% or ₹16 apiece to its shareholders, including ₹8 apiece in July 2022 and ₹8 in October 2022.

As per the company, the third interim dividend and the special dividend will be paid on February 3, 2023, to eligible shareholders. The record date for determining the eligibility of equity shareholders of the company for the purpose is January 17, 2023.

Attrition rate drops marginally

While announcing its results for the third quarter of FY23, TCS said that attrition for the October-December period declined marginally to 21.3% from 21.5% in the previous quarter. “IT services attrition on an LTM basis trended down to 21.3% and is expected to fall further in the coming quarters,” TCS said in its earnings report. 

As of December 31, 2022, TCS’ workforce stood at 613,974, a net reduction of 2,197 during the quarter. The improved productivity was achieved by focusing on utilising the excess capacity built up over prior quarters and through investments in organic talent development. The workforce comprises of 153 nationalities, while women constitute 35.7% of the base.

Milind Lakkad, Chief HR Officer, said: “Our focus over the last few quarters on bringing in fresh talent at scale, training them on new technologies and making them productive is paying off. We are particularly proud of having 125,000 TCSers at middle and senior levels who have been with the company for more than 10 years on average."

Retail and CPG sector outperformed

Industry wise, retail and CPG posted the highest growth of 18.7%, followed by life sciences & healthcare verticals by 14.4%. Among others, communications & media business grew 13.5%; technology & services by 13.6%; manufacturing by 12.5%; and BFSI by 11.1%.

Among major markets, North America and the U.K. led with 15.4% growth; Continental Europe grew 9.7%. In emerging markets, Latin America grew 14.6%, followed by India (9.1%), Asia Pacific (9.5%), and Middle East & Africa (8.6%).