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IT Giants Beat Revenue Estimates Amidst Cost Pressures
13 Jan
Summary
- TCS and HCLTech exceeded revenue expectations in Q3
- New wage regulations caused significant additional costs
- Demand remains robust, but global market uncertainty persists
India's prominent IT services companies, Tata Consultancy Services (TCS) and HCL Technologies, have initiated the earnings season with revenues surpassing analyst projections for the October-December quarter. TCS reported $7.51 billion in revenue, while HCLTech announced $3.79 billion, exceeding expectations. A significant portion of TCS's growth stemmed from European clients, whereas HCLTech saw substantial gains from software product sales.
Despite the positive revenue figures, profitability faced pressure due to new government labor codes mandating that basic pay constitute at least 50% of total compensation. This resulted in increased statutory payouts, leading to approximately $350 million in additional costs for TCS and HCLTech combined during the quarter. This financial strain impacted operating margins, although both companies reported progress in AI-related revenue streams.
TCS and HCLTech project continued strong demand, with TCS focusing on short-cycle projects and HCLTech navigating global market uncertainties. HCLTech revised its full-year guidance slightly downwards. TCS also faced costs from a legal claim, impacting its overall financial results. The companies are now focused on achieving year-end revenue targets amid evolving market dynamics and AI adoption.
