IT boom on, but TCS profit misses estimates as cost of employees jump

Tata Consultancy Services (TCS), Asia’s largest software outsourcing provider, reported earnings that trailed analysts’ estimates as the IT services provider boosted hiring and paid more to retain workers during a technology boom brought about by the pandemic. TCS net income rose to 97.7 billion rupees ($1.3 billion) in the quarter through December, it said in a statement Wednesday. Analysts estimated 99.88 billion rupees on average. Sales climbed to 488.9 billion rupees. The company said it will buy back stock worth 180 billion rupees.

India’s top IT firm has bounced back from a deadly wave of Covid infections that disrupted work in India and is now benefiting from a shift toward automation, the cloud and e-commerce. Expenses are rising though as the internet boom spurs salary hikes for tech talent.

What Bloomberg Intelligence Says

A boost in spending on digital transformations and the need for deeper IT savings will be the main drivers that accelerate sales growth over the next 2-3 quarters. Tata’s base of almost 529,000 employees makes it easier to absorb any increased costs, helping to maintain an industry-high operating margin of over 25%.

- Anurag Rana, analyst

Rival Infosys Ltd. reported a 12% increase in profit and raised its revenue guidance for the year earlier on Wednesday. The world’s top IT outsourcing firms have begun to offer services like cybersecurity, automation and machine-learning support for clients, diversifying from traditionally more labor-intensive backroom services. That expansion has inflated the cost of hiring and training employees in those newer technologies, compressing margins.

TCS is the crown jewel of Tata Sons Ltd., the holding company for one of India’s largest conglomerates. Its shares climbed 31% last year, and are up 3.25% this year.