TCS shares fall 4% as Q1 fails to impress D-Street
Shares of Tata Consultancy Services (TCS) dropped over 4% in opening trade on Monday after the country’s largest software reported lower-than-expected earnings for the first quarter ended June 30, 2022. The IT heavyweight missed analysts’ estimates on margin, profit, and dollar revenue growth amid macroeconomic uncertainties and cost headwinds due to salary increases and other operating expenses.
TCS, which announced its financial results for the April-June 2022 quarter on Friday, reported a 5.2% year-on-year growth in consolidated net profit and 16.2% rise in revenue from operations, while the operating profit margins dropped to 23.1% due to wage hikes and the continued rationalisation of employee costs amid high attrition.
Reacting to Q1 results, TCS share price opened lower at ₹3,220 against the previous closing price of ₹3,264.85 on the BSE. In the first hour of trade so far, the stock dropped 4.6% to hit a low of ₹3116.40 levels amid spurt in volume trade. As many as 0.5 lakh shares worth 15.9 crore changed hands over the counter on the BSE, compared with a two-week average volume of 0.76 lakh shares. The market capitalisation of the country’s second most valued firm stood at ₹11.47 lakh crore. In comparison, the BSE benchmark Sensex was trading 324 points lower at 54,158 levels.
TCS shares traded lower than its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages. The index heavyweight has delivered a negative return of 2.5% in the past one year, underperforming the BSE Sensex by nearly 6%. The large cap stock is 3% away from its 52-week low of ₹3,023.35 touched on June 17, 2022. The IT major hit a 52-week high of ₹4,045.50 on January 18, 2022.
Post Q1 results, most of the analysts have revised downward TCS’s earnings estimates, citing looming fear of potential U.S. recession, forex volatility, and continued supply-side challenges. However, the company’s management remained optimistic about future growth, saying that demand for technology remains ‘robust’ and the company has not seen any ‘immediate footprint’ of the recession on the demand side.
“We are seeing steady demand from our immediate conversations with the customers..all projects that are currently going on, the pipeline conversions..all of that indicates a very steady demand environment. We are constantly polling to see if there are any early indications of softening and as of now, there is nothing. Into the middle of the year, we have been fairly very close to our customers and they seem to be very, very focused and no indication is immediately available,” chief executive officer and managing director Rajesh Gopinathan said in a media conference post the release of the company's Q1FY23 earnings.
The IT major has reported 5.2% YoY growth in consolidated net profit at ₹9,478 crore for the quarter ending June 30, 2022, but dropped 4.5% sequentially on higher expenses. Revenue from operations rose 16.2% YoY and 4.3% QoQ to ₹52,758 crore during Q1FY23. The company’s operating margin slipped to 23.1% in June quarter of 2022, as against 25.5% in the same period last year and 25% in the previous quarter. The company has also announced an interim dividend of ₹8 per share, which will be credited by August 3, 2022, and the record date for the same is July 16.
TCS’ staff strength stood at 606,331 as on June 30, a net addition of 14,136 during the quarter. The IT services provider’s attrition rate was 19.7% during the quarter under review even after it handed out pay hikes of up to 8% to its staff.