BENGALURU (Reuters) -Shares of Tata Consultancy Services Ltd dropped as much as much 4.8% to a three-week low on Monday, after India's top IT services provider missed first-quarter profit estimates on rising employee-related expenses.
TCS reported a net profit of 94.78 billion rupees ($1.19 billion) on Friday, falling well short of the average analyst estimate of 98.51 billion rupees, according to Refinitiv data.
Operating margin fell to 23.1% from 25.5% a year earlier, mainly due to an impact of annual salary increase, elevated cost of managing the talent churn and gradually normalising travel expenses.
TCS Chief Executive Officer Rajesh Gopinath said deal pipeline and closures continue to be strong, but the company remains vigilant given global uncertainties.
"Although management expects tech spends to be resilient, we see clear signs of moderation in demand," ICICI securities said in a note.
TCS flagged that attrition was continuing to increase on an absolute basis, but its net hiring stood at 14,136 during the June quarter.
"While management seemed confident on demand outlook, higher reliance on subcontracting along with lower net hiring (seven-quarter low) indicates that the company is preparing for an uncertain macro environment," Jefferies analysts said in a note.
Multiple analysts also showed concerns over order book for the quarter, which stood at $8.2 billion, 1.2% higher from a year ago.
TCS was the first among its domestic peers to report earnings, with investors looking to gauge the outlook for the sector which has had a stellar run in the past couple of years, with companies expanding their digital offerings during the pandemic.
TCS weighed on the Nifty IT index, which was down 3.1%, besides dragging the bluechip Nifty 50 index 0.5%.
TCS shares are down 16.4% so far this year, against a 29.2% fall in the Nifty IT index.
($1 = 79.4000 Indian rupees)
(Reporting by Nishit Navin in Bengaluru; Editing by Rashmi Aich)