TCS, Infosys report muted growth in Q3 FY24, bank on cloud GenAI for large deals

India's two largest IT services firms, Tata Consultancy Services (TCS) and Infosys, reported muted growth and profit on Thursday, signalling the global trend that IT companies are facing weak demand in their key markets due to macroeconomic slowdown. 

Muted growth, profit for TCS, Infosys 

 TCS reported a net profit of Rs 11,058 crore in the quarter ended December 31, 2023, which was only a 2% increase from Rs 10,846 crore in the same quarter the previous year. This can be attributed to high furloughs in the BFSI and hi-tech sectors, along with a continued slowdown in discretionary spending. Net profit was down 2.5% compared to the previous quarter.  

Meanwhile, Infosys reported a 7.3% year-on-year (YoY) decrease in net profit at Rs 6,106 crore in the third quarter of FY24. On a sequential basis, the company's bottomline declined by 1.7%, according to a regulatory filing on January 11. Infosys also narrowed its revenue growth guidance for the full year to 1.5-2% after previously lowering it to 1-2.5%. Consolidated revenue for the quarter increased by 1.3% YoY to Rs 38,821 crore.  

TCS saw a relatively higher increase in consolidated revenue, rising 4% YoY to Rs 60,583 crore in the three months ended December 31 compared to Rs 58,229 crore the previous year. The EBIT margin, or operating margin, expanded to 25% from 24.3% in the previous quarter. 

The third quarter is typically a weak period for IT companies due to the negative impact of furloughs and fewer working days. Despite these challenges, TCS CEO and MD K Krithivasan said, “Our strong performance in a seasonally weak quarter buffeted by macro-economic headwinds, demonstrates the strength of our business model with a well-diversified portfolio and a customer centric strategy.” 

TCS reported a total contract value (TCV) of deals amounting to $8.1 billion, below its quarterly guidance range of $9-10 billion.  

Infosys CEO and MD Salil Parekh too highlighted the company's resilient performance and strong large deal wins, which amounted to $3.2 billion, with 71% of it being net new.  

Also, the company today announced a definitive agreement to acquire InSemi, a leading semiconductor design and embedded services provider for ₹280 crore. 

Banking on cloud, GenAI 

Notably, both the companies are banking on emerging technologies such as generative AI and cloud capabilities to win big deals and subsequently revenue growth. For example, Parekh said in a press release, “Our clients are leveraging our Topaz generative AI capabilities and our Cobalt cloud capabilities to create long-term value for their businesses.” 

Krithivasan expressed confidence in the company's customer-centric strategy and the potential of emerging technologies, especially generative AI.  In October, TCS expanded its links with Azure OpenAI, the venture between Microsoft and OpenAI. It also staked a claim to be one of the largest providers of AI-trainer workforce globally, with over 100,000 employees trained to date.  

Shrinking headcount 

Both companies experienced a decline in headcount, with Infosys seeing a reduction of 6,101 employees and TCS recording a decline of 5,680 employees. Prasadh M S, head of Workforce Research, at Xpheno, told TechCircle that the IT Services annual closures on talent aren't looking encouraging going into 2024. With attrition under control for most players, and expansion hiring not underway, the hiring action will remain subdued for the quarter ending March 2024. Hiring action should be expected to pick up later in the quarter ending June 2024. Amidst the current situation of extended headwinds, both lateral and fresh talent in IT should brace for an extended hiatus, he said.

IT majors Wipro and HCLTech are slated to release their respective December quarter (Q3FY24) earnings on Friday, January 12.