Friction at a touch of high record TCS; This might be worse, warning management

For the Biggest Tata Consultancy Services (TCS) – the largest IT service provider in India and the largest in the world – the highest touching friction rate of 17.4 percent in Q4FY22. Management, following the announcement of the results of Q4, has warned that the friction situation can get worse before repairs.

According to analysts, short term, the friction rate on TCS can even touch 20 percent. The current situation is even poorer than the second quarter of FY15 when the number touches 16.2 percent.

The company hopes because the recording hires on TCS, the friction number will drop. The reason is that with the IT industry also employs large quantities, supply side pressure will subside. In 2021-22, the company added 35,209 associates in Q4, with a total of 592,195. This is the highest additional quarterly ever.

For FY22, more than 100,000 employees – 2.5x FY21 figures.

 The company said that he would continue to increase the number of similar people in FY23, too. In the first quarter of FY23, TCS has a target of 40,000 clean additions.

Friction at a touch of high record TCS; This might be worse, warning management

According to company archiving, the cost of employees for the fourth quarter of FY22 at RS 28,353 Crore rose 20 percent YoY.

Despite the addition of high employees and supply challenges, management reaffirms that he aspires to have a margin in the range of 26-28 percent. The operating margin was established at 25 percent in Q4, and 25.3 percent for all FY22. The financial year witnessed the impact of 230 basis points due to increased and tactical intervention, in addition to the impact of 100 basis points due to subcontractor fees.

Samir Sadaria, CFO, TCS, said the company can operate in a margin of 26-28 percent. “We will double our operational lever to help us close to this band … at FY23, at least at first, we will see some churn and pressure on the margin.”

He also noted that some levers are better realization through increasing prices and a better mixture of portfolio, doubling operational levers such as the use of automation, increasing productivity, and optimizing consultant costs, and support from the currency.

However, this road expects margins remain under pressure for some time. According to ICICI Research Note, the margin will be under pressure until FY24, resulting in a contraction of 30 bps margins at FY22-24E.