Indian IT services major Tata Consultancy Services (TCS) will be declaring its Q2FY24 results on Wednesday, October 11. Due to the headwinds faced by the sector, the IT major is expected to report a muted set of results in the September quarter with profit after tax (PAT) estimated to be up by 0.8 per cent QoQ at Rs 11,162 crore, as per analyst estimates.
This trend of subdued growth is expected to reflect in TCS’ hiring, attrition, variable pay to employees, etc as well.
Hiring numbers
It is worth noting that in Q1FY24, TCS was the only Indian IT company to have a net positive addition of employees. The company added 523 people to its workforce that comprises around 6 lakh employees. The employee addition in Q1 was down drastically compared to the year-ago period. The IT major had added 14,136 employees in Q2FY23, which means the net employee addition in Q1FY23 was 28 times that of net employee addition in Q1FY24.
The company had added 9,840 employees in Q2FY23. It is expected that the hiring numbers in Q2FY24 would be relatively lower amid uncertainty in demand and continued caution on discretionary spending.
Hiring of freshers
The IT major was the only company in the sector to put forth a fresher hiring target for FY24. TCS said that the company will be hiring 40,000 freshers in FY24.
The IT major might revise this target depending on the expected deal flow post Q2. In FY23, TCS had hired 44,000 fresher employees, but as Business Today previously reported, there has been a considerable delay in onboarding of new employees.
Work from home
It is expected that TCS might make some significant announcements regarding its work from home/ work from office policy. In September, TCS had called back specific teams back to the office full time. New CEO K Krithivasan explained that this was due to client demand.
Noteworthily, former CEO Rajesh Gopinathan had introduced the 25-25-25 plan, under which by 2025, only 25 per cent of TCS employees would work out of facilities at any point of time. And employees had to be in offices only for 25 per cent of the month. The company seems to be moving away from this plan, and announcements regarding the same are expected in the Q2FY 4 results.
Variable pay
A part of the variable pay, or performance pay, of employees is dependent on company performance. Since TCS won multiple big-ticket deals in H1FY24, it is expected that the company would pay variable pay to some employees, mostly in the lower bands.
The company had paid 100 per cent variable pay to employees in lower bands in Q1FY24.
Expected numbers
Analysts are expecting TCS to put forth a subdued set of numbers due to the not-so-encouraging global macroeconomic trends. IIFL Securities said it sees profit for TCS at Rs 11,497.80 crore, up 10.2 per cent YoY. It sees revenue at Rs 60,268.30 crore, up 9 per cent.
Their analysts noted, “We forecast TCS’ revenue to grow by 1.2 per cent CC QoQ, as discretionary spend by clients remained soft amid an uncertain macro.”
Similar projections are made by HDFC Institutional Equities. The brokerage expects a 10.5 per cent YoY growth in profit for TCS at Rs 11,530 crore.
JPMorgan analysts expect investors to parse upcoming September quarter results and commentary from Indian IT companies for signs of recovery in deal signings in fiscal 2025 following a ‘washout’ year.
“We remain negative on the sector as we haven’t seen a meaningful uptick in demand in our recent checks. We think the overall setup is not as positive as last quarter,” analysts Ankur Rudra and Bhavik Mehta said in a note last week.
All major IT firms, including Infosys Ltd, TCS, Wipro Ltd and HCLTech, have previously warned that clients, the majority of which are US-based, have been lowering their IT spending, delaying and even cancelling contracts, as economic growth slows and on fears of higher-for-longer interest rates.
The focus for this quarter’s earnings reports will be on deal signings as well as the split of new deals versus renewals to assess fiscal 2025 growth, the analysts said.
Last month, IT services firm Accenture has forecast full-year earnings and first-quarter revenue below Wall Street targets on Thursday, signaling that high inflation and interest rates pressures will hurt demand through next year.
With inputs from Reuters
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