IT Q3 results: TCS and Infosys beat Street estimates, Wipro misses

Tata Consultancy Services okays Rs 18,000-crore buyback

On a day three IT services majors announced their third quarter financial results for FY22, Infosys clearly led the chart with a strong performance on several fronts. Both Tata Consultancy Services and Infy beat the Street estimates on growth, while Wipro fell short of expectations after delivering consistent performance in the last three to four quarters.

Even as TCS managed to report strong revenue growth, it missed the Bloomberg estimates on operating profits. TCS margins came in at 25 per cent. The company also announced on Wednesday that its board had approved a buyback plan of up to Rs 18,000 crore at Rs 4,500 per share. This is the fourth buyback by the company in five years. The total cash returned to shareholders in the first three buybacks adds up to Rs 48,000 crore.

“Infosys reported another quarter of excellent all-round growth across financial parameters. We believe the company is well positioned to report industry-leading organic revenue growth among large peers given strong demand, healthy deal wins, robust deal pipeline and market share gains,’’ said Ashis Dash, research analyst, Sharekhan by BNP Paribas.

But the clear message from the performance of the top three IT services players was that the growth momentum is strong, in a traditionally soft quarter. Mostly, the growth is being driven by digital transformation and cloud adoption.

In case of Infosys, the company not only beat its constant currency revenue growth by 7 per cent on sequential basis, it also upped its FY22 revenue guidance to a range of 19.5 per cent to 20 per cent, from the earlier 16.5 per cent to 17.5 per cent growth target. What also stood out in case of Infosys was its margin performance despite a rising attrition, and higher salary cost. Margins of the quarter came in at 23.5 per cent.

Having crossed the $25-billion mark in revenue for CY21, TCS’ constant currency revenue came in at 4 per cent sequentially and 15.4 per cent on year-on-year basis. The company said that from a Q3 perspective, this was one of the highest growth in the last five years.

Though Wipro was aided by growth across most of the key segments, consolidated revenues were up 29.6 per cent year-on-year and 3.3 per cent quarter-on-quarter to Rs 20,314 crore. For the IT segment, while reported sequential growth was 2.3 per cent, on a constant currency basis, the company posted a 3 per cent growth. This was lower than the consensus estimates that had pegged the growth at 4 per cent and was within the mid range of the company’s guided 2-4 per cent growth.

In terms of deal pipelines too, all three companies reported healthy growth signifying that the FY will end with a double digit growth rates. TCS reported a total contract value (TCV) of $7.6 billion, while Infosys’ big deals were pegged at $2.53 billion. In the case of Wipro, it was $2.85 billion.

Growth for the top two players was broad-based across regions and sectors. “The $7.6 billion TCV is broad-based and not skewed to a particular deal or region. We have seen demand across regions and sectors,’’ said Rajesh Gopinthan, CEO and MD of TCS. The company’s year-to-date TCV is $23.3 billion, Gopinthan said.

But the biggest concern that all three continued to exhibit in this quarter was rising attrition. But the companies said that on a quarterly basis they have witnessed attrition coming down.

The quarterly results today exhibit strong fiscal growth. There is a looming challenge of attrition that they need to address urgently,’’ said D D Mishra, Senior Director Analyst, Gartner. He pointed out that 20-30 per cent attrition rates are not sustainable, and those in this category may need to reevaluate the situation. Over a period, this is likely to impact the financial performance of the IT service providers, according to Mishra.

All three companies' results were announced post market hours on Wednesday. On the NSE, ahead of the results, Infosys shares closed 1.5 per cent higher, Wipro was down 0.45 per cent while TCS was down 1.5 per cent. However, on the NYSE, Wipro's ADR (American Depository Receipt) was down over 8 per cent (at 10 pm India time) in early trades, while Infosys' ADR was up 2.4 per cent.