June quarter profits of TCS fell short of market forecasts, and the company’s shares dropped by over 5%, wiping off Rs 55,471.22 Cr from its market value.
TCS shares crash post Q1 results. Tata Consultancy Services (TCS) shares tumbled over 5 percent on Monday, erasing Rs 55,471.22 crore off the company’s market capitalization after the company’s June quarter profits fell short of market expectations.
TCS stated on Friday that its net profit for the June quarter increased by 5.2% to Rs 9,478 crore, despite annual salary increases and promotions reducing operational profit margins to multi-quarter lows.
The share price decreased by 4.71 percent to 3,111 rupees on the BSE. On the NSE, it fell by 4.76 percent to end the day at Rs 3,110. In the early going of trading on the BSE, its market capitalization (mcap) dropped by Rs 54,830.89 crore, bringing it to Rs 11,39,794.50 crore.
TCS reported a net profit of 94.78 billion rupees ($1.19 billion) on Friday, which is much less than the average estimate of 98.51 billion rupees by industry analysts. The operating margin decreased from 25.5 percent a year ago to 23.1 percent, a decline from 25.5 percent.
The order book for the quarter, which totaled $8.2 billion and increased by 1.2% compared to the previous year, was disturbingly high even for specialists. Investors were interested in acquiring a better grasp of the industry’s future prospects since the sector has had such a prosperous run over the last few years due to enterprises boosting their digital product offerings throughout the epidemic. TCS was the first among its domestic rivals to announce its findings.
The Tata Group firm, which is the first in the country’s over USD 220 billion software exports sector to declare profits, said that it does not anticipate any negative effects on its operations because of concerns over a recession in its core markets.
It reported a 16.2 percent growth in revenue at Rs 52,758 crore for the quarter, with all of the major geographies and business segments reporting strong numbers; however, it was operating profit margins slid down to 23.1 percent, which is much lower than the aspirational band of over 26 percent, that hurt the growth of profit.
According to the Chief Financial Officer, Samir Seksaria, “It has been a hard quarter from the standpoint of cost control. The effect of our yearly wage raises, the heightened cost of managing talent turnover, and the progressive normalization of travel expenditures are all reflected in our operating margin for the first quarter, which came in at 23.1 percent.
Nevertheless, our longer-term cost structures and relative competitiveness have remained the same, and this puts us in a good position to continue our profitable growth trajectory.
Analysts at Jefferies said in a note, “While management seems optimistic about the demand forecast, a greater dependence on subcontracting and a seven-quarter low in net hiring imply that the firm is bracing for an uncertain macro environment.”
While JP Morgan has maintained its underweight rating and same price target on TCS. JP Morgan said, “We estimate margins to remain below 25% for the next three years, and profits growth to be in the single digits, making current values exorbitant.” Maintaining a neutral rating and target price of 3,570, UBS said that it anticipates a negative response to the stock soon as a result of severe margin compression unless rival firms report more negative surprises.
Other than TCS, most other IT companies also concluded the day with a loss, with frontline companies such as HCL Technologies, Infosys, Wipro, and Tech Mahindra seeing losses that ranged from 4.10 to 1.83 percent. The BSE Information Technology index finished with a loss of 2.70 percent, coming in at 28,020.72 points. The BSE Information Technology index finished with a loss of 2.70 percent, coming in at 28,020.72 points.
