Q1 FY24: TCS Beats Analyst Expectations With Strong Results, HCLTech Falls Slightly Short

Tata Consultancy Services (TCS) on Wednesday announced its Q1 FY24 results, exceeding market expectations across various key performance indicators. The company witnessed robust growth in revenue, a healthy increase in net profit, and strong Total Contract Value (TCV) numbers. However, the operating margin experienced a slight decline compared to the previous quarter.

Revenue growth emerged as a standout achievement for TCS in Q1 FY24. Analysts had initially predicted flat revenue growth for the seasonally strong quarter. However, TCS delivered a substantial year-on-year (YoY) increase of 12.6 per cent, exceeding market expectations. In constant currency terms, the revenue growth stood at an impressive 7 percent compared to the same period last year.

While analysts had anticipated a 90-basis points quarter-on-quarter decline in EBIT margin, TCS reported a marginal decline of 130 basis points. The operating margin for Q1 FY24 stood at 23.2 percent, reflecting a 0.1 per cent increase compared to the previous year but a decline compared to the previous quarter. Despite the slight decrease, TCS's EBIT margin remains strong and competitive within the industry.

Net profit for TCS in Q1 FY24 surpassed analyst expectations with a year-on-year growth of 16.8 percent. The company achieved a net income of Rs 11,074 crore, further solidifying its position as a profit-generating powerhouse in the IT services sector. Although analysts did not provide specific expectations for net profit, TCS's remarkable growth in this area highlights its efficient operational performance.

In terms of Total Contract Value (TCV), TCS outperformed forecasts by securing a strong order book of USD 10.2 billion in Q1 FY24. This impressive figure surpassed its quarterly deal win guidance of USD 7-9 billion. Additionally, the TCV for the quarter demonstrated remarkable growth of 24.39 percent on a year-on-year basis.

On the other hand, Noida-based IT services company HCL Technologies (HCLTech) also announced its financial results for the first quarter of FY24 on Wednesday, revealing a nearly 8 per cent YoY rise in consolidated net profit. However, the figures fell slightly short of market expectations, which were based on analyst forecasts.

According to analysts, a soft discretionary spending environment and project pullbacks in the financial services and telecom sectors were expected to drive a sequential revenue decline or marginal growth for Tier 1 IT companies in a seasonally strong quarter. Furthermore, wage revisions and cost increases were predicted to result in a decline in EBIT margin quarter-on-quarter.

In terms of revenue, HCLTech reported a consolidated revenue growth of 12 per cent YoY to reach Rs 26,296 crore. However, there was a sequential decline of 1.2 per cent, which was slightly below the market's expectations. Similarly, the company's net profit for the quarter stood at Rs 3,534 crore, reflecting an 8 per cent year-on-year increase. Yet, there was an 11.3 per cent sequential decline, missing analyst forecasts.

While the Q1 FY24 results did not align perfectly with analyst predictions, HCLTech remained confident in its growth prospects. Despite the sequential decline in revenue and net profit, the company retained its guidance of 6-8 per cent constant currency revenue growth for FY24, with an operating margin range of 18-19 per cent.

HCLTech's performance in securing deals during the quarter was noteworthy, as it managed to secure 18 large deals totaling USD 1.6 billion. The deal pipeline continued to grow, reaching an all-time high with an 18 per cent sequential increase and a 26 per cent YoY rise.

The attrition rate for the quarter stood at 16.3 per cent, showing a decrease from the previous quarter's 19.5 percent. However, HCLTech experienced a decline in its headcount, with a net decrease of 2,506 compared to the previous quarter, despite adding 1,597 freshers during the same period.

While financial services and manufacturing sectors witnessed YoY growth, sequential growth in these verticals moderated, indicating a slowdown in tech spending by clients. The Americas saw muted sequential growth of 0.2 per cent, while Europe experienced a decline of 2.4 per cent. The top five clients contributed 9.8 per cent to HCLTech's revenue in the last quarter, down from 11.2 per cent a year ago.