TCS Q3 Results: One-time labor code cost impacts net profit, margins meet estimates

Tata Consultancy Services Ltd

. (TCS), Tata Group's largest company and India's largest IT services provider, reported results after market hours on Monday, January 12, which were in-line with what the street was anticipating on most parameters.

Net profit for the period fell 12% from the September quarter to ₹10,657 crore from ₹12,075 crore earlier. The company saw a one-time impact of ₹2,130 crore due to the new labor laws, which impacted profitability. The company has also made a provision towards a legal claim of ₹1,010 crore during the quarter.

The company's revenue in rupee terms stood at ₹67,087 crore, which is a growth of 2% from the September quarter. A CNBC-TV18 poll had projected the figure to be at ₹66,728 crore.

In constant currency terms, TCS' revenue grew by 0.8% on a sequential basis, higher than the 0.5% average estimate from analysts. Kotak had projected constant currency growth to be flat, driven by a 0.7% sequential growth in the international business and partly offset by a decline in the India business.

Earnings Before Interest and Tax for TCS stood at ₹16,889 crore, which is marginally higher with the CNBC-TV18 poll of ₹16,800 crore. On a sequential basis, TCS' EBIT went up by 2%.

EBIT margin for the quarter stood at 25.2%, the same as the 25.2% figure in September and in-line the 25.2% projected in the CNBC-TV18 poll estimate.

Deal wins at the end of the quarter stood at $9.3 billion.

The Tata Group company has also approved its third interim dividend of ₹11 per share for its shareholders. Along with this, the company has also approved a special dividend of ₹46 per share, taking the total payout for shareholders to be ₹57 per share. Record date for the dividend payout will be Friday, January 16.

During its analyst day recently, TCS had highlighted that it has executed over 5,000 AI engagements and that AI-related services have generated over $1.5 billion in revenue on an annualized basis. This figure is nearly 5% of the company's revenue.

The management also highlighted that AI is growing ahead of the overall revenue growth with a 16.3% sequential growth and 38.2% year-on-year growth in constant currency terms. TCS is also confident of new age services to contribute to nearly $11 billion in annualized revenue.

Shares of TCS recovered from the lows of the day, to end 0.8% higher before the earnings announcement at ₹3,233.3.