TCS' Q2 results: Market analysts give a big thumbs up to the IT major

The country's largest IT company, Tata Consultancy Services (TCS) delivered a set of numbers in line with what the street had expected. Revenue and margins increased and compared to the preceding quarter, its numbers across segments were up. Getting past the Rs 10,000 crore net profit figure for Q2 was historic and on a larger base, it is commendable that the company has managed to sustain its growth story. However, the situation across the world does pose a few challenges. Much as a depreciating rupee has worked well for TCS, as it has for all IT majors, how long this part can hold out is not something that can be predicted. Here are a few takeaways based on the Q2 numbers:

Net profit: The company has gone past a net profit of Rs 10,000 crore for Q2 of FY23. Cut back to FY12, when the total profit for the year was Rs 10,000 crore. Deven Choksey, MD, KR Choksey Securities points out that a growth of 4x in net profit on a large base is impressive. "That is a compounded annual growth rate of 15-16 per cent."

Attrition levels: It was at 21.5 per cent for Q2 and that will be a big challenge. Most IT majors are now changing tack to recruit freshers to reduce the impact of attrition – that could mean graduates in science or commerce or the arts to ensure the workforce spends more time with the organisation.

The depreciating rupee: A depreciating dollar augurs well for the IT industry as they end up raking in more revenue. If costs are managed smartly, margins are not only protected but often move northwards as well. Choksey says the real culprit is not the depreciating rupee but the US dollar. "Thus far, it has worked very well for the IT companies but let's not forget the stock markets are in a challenging position. That with a depreciating rupee makes it difficult to predict how IT stocks will play out in the long-term," he adds.

Margin improvement: At an EBIT level, it is at 24 per cent and expected to hit 25 per cent for the fiscal. That is viewed as a positive and an indication of business being relatively steady. However, analysts think cross-currency headwinds are a challenge and could potentially have a negative impact on margins.