India’s largest software services firm, Tata Consultancy Services (TCS), reported a sequential 3.16% drop in net profit for the June quarter, impacted by wage hikes for its over 600,000 employees and an ongoing slowdown in demand. TCS posted a net profit of Rs 12,040 crore, which was below analyst expectations but still 8.7% higher than the previous year. The company reported revenue of Rs 62,613 crore, marking a 5.4% increase year-over-year and a 2.25% sequential rise.
Market Conditions and Growth Drivers
Despite the increase in revenue, TCS did not signal any significant uptick in technology services demand, which has reached an all-time low due to macroeconomic uncertainties and geopolitical issues affecting key markets like the US, UK, and Europe. Much of the incremental growth came from a Rs 15,000 crore deal with state-owned telco Bharat Sanchar Nigam Ltd (BSNL), leading to a 61.8% year-over-year jump in TCS’s India business.
While CEO K Krithivasan remains optimistic that FY25 will be better than FY24, he stated it is “too early” to determine if the growth momentum is sustainable. “The market conditions continue to remain the same as last quarter. There is nothing new to add in terms of market sentiment,” Krithivasan said. TCS has a deal pipeline of $8.3 billion, although some deals are taking time to finalize.
Hiring and AI Projects
TCS reversed the hiring decline from FY24 by adding 5,452 net new employees in the first quarter, along with nearly 11,000 trainees. The company plans to hire around 40,000 from campuses throughout the year. AI, cloud, enterprise solutions, Internet of Things and Digital Engineering (IoT & DE), and cybersecurity led the growth in the June quarter. TCS’s generative AI (GenAI) project pipeline doubled to $1.5 billion, up from $900 million in the March quarter.
Financial Performance
After three consecutive quarters of growth, TCS saw its operating margin narrow to 24.7% in the June quarter, down 130 basis points from the previous quarter, although it still boasts the widest margin among larger Indian IT firms. CFO Samir Seksaria emphasized the company’s efforts towards operational excellence, saying, “Despite the usual impact of the annual wage increments in this quarter, we have delivered strong operating margin performance.” TCS aims to further increase efficiency and employee utilization to boost margins.
Dividend and Market Reaction
TCS announced an interim dividend of Rs 10 per share. TCS shares ended marginally higher at Rs 3,922.70 on Thursday, on an almost flat BSE Sensex. The earnings were announced after market hours. Since early June, TCS shares have risen by 6.9%.
Sector Outlook and Performance
Sanjeev Hota, head of research at Sharekhan by BNP Paribas, noted that TCS’s Q1 performance is likely to improve sentiment for IT stocks and positively impact the overall sector. In the banking, financial services, and insurance (BFSI) vertical, North America showed better growth than Europe, indicating a recovery in the key region, although BFSI overall shrank by 0.9%. The life sciences and healthcare sectors grew by 4%, and manufacturing increased by 9.4%. Geographically, North America contracted by 1.1%, the UK grew by 6%, and the Asia-Pacific region expanded by 7.6%. The India business saw a 61.8% increase, raising its market share to 7.5% from 4.9% a year ago.
“There is no specific delay in orders getting closed,” the CEO said. “This quarter, we had some major projects we expected to close within Q1 that moved into Q2. Our order book pipeline remains healthy, with a total contract value (TCV) of $12.4 billion replenished from the previous quarter.”
AI and GenAI Engagements
TCS reported that over 270 AI and GenAI engagements have been deployed or are in progress. These engagements include dynamic pricing strategies, improved product quality, enhanced customer experiences, and significant productivity boosts in business operations, software development, and IT operations.
, reported a sequential 3.16% drop in net profit for the June quarter, impacted by wage hikes for its over 600,000 employees and an ongoing slowdown in demand. TCS posted a net profit of Rs 12,040 crore, which was below analyst expectations but still 8.7% higher than the previous year. The company reported revenue of Rs 62,613 crore, marking a 5.4% increase year-over-year and a 2.25% sequential rise.){kind=link}