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Tata Consultancy Services (TCS), India's largest software exporter, reported a 5% year-on-year increase in net profit for the second quarter, reaching Rs 11,909 crore. This growth was primarily driven by the ramp-up of their significant Rs 15,000 crore deal with state-owned telco Bharat Sanchar Nigam Ltd (BSNL). However, despite this positive development, clients in key markets like America and Europe remained cautious regarding their technology spending.
CEO K Krithivasan acknowledged the cautious demand outlook while also noting “some signs of improvement, most notably in financial services in North America.” He expressed optimism that the second quarter of FY25 could see improvement, with the easing of interest rates potentially leading to increased investment and bolstering consumer and industry confidence. This optimistic view comes as the industry navigates an unprecedented slowdown in demand amidst macroeconomic uncertainty.
On a sequential basis, TCS's net profit dipped 1%, primarily attributed to margin-dilutive work outside the Americas. Revenue performance exceeded ET estimates, with consolidated revenue reaching Rs 64,259 crore – a 7.6% year-on-year increase and a 2.6% sequential gain. The BSNL deal significantly boosted India sales by 95% compared to the previous year. However, North America, TCS's largest market, saw a 2.1% decline, while the UK experienced a 4.6% increase.
The company announced a second interim dividend of Rs 10 per equity share, payable on November 5. TCS shares closed marginally lower (0.6%) at Rs 4,228.40 on the BSE, while the Sensex closed up 0.2%. Over the past three months, TCS shares have risen 8%.
TCS highlighted its ongoing progress in artificial intelligence (AI) and generative AI (GenAI), reporting over 600 AI and GenAI engagements deployed successfully in production or various development stages. Their AI and GenAI pipeline has doubled every quarter, reaching $1.5 billion in the April-June period from $900 million in the March quarter.
The company added three large clients in the quarter, increasing the number of clients contributing over $100 million to revenue to 66. Their order book also saw a slight increase to $8.6 billion in total contract value (TCV), compared to $8.3 billion in the June quarter.
Despite the positive revenue growth, TCS experienced a second consecutive quarter of shrinking margins, falling to 24.1% from 24.7%. Analysts anticipated that the BSNL deal, with its pass-through component, would limit margin expansion. Key business themes across industries, as outlined by Krithivasan, included cost optimization, vendor consolidation, customer experience transformation, supply chain modernization, and risk and resiliency.
TCS emphasized that clients worldwide are prioritizing efficiency through cost transformation programs. Financial institutions in the US are aiming to sustain growth momentum following the Federal Reserve's first interest rate cut in four years. TCS's growth was led by the energy, resources, and utilities sector (7.0%) as well as manufacturing (5.3%). Markets such as India, the Middle East and Africa (+7.9%), Asia Pacific (+7.5%), and Latin America (+6.8%) outperformed the company's average growth.
The stock market has shown a positive outlook for IT following Accenture's upgraded FY25 guidance and improved sentiment after the US Federal Reserve's interest rate cut last month. ET has reported industry expectations for an improved second half, with hiring and demand showing signs of a pick up after a prolonged lull.
HCLTech is scheduled to report earnings on October 14, while Infosys and Wipro will release their results on October 17.
TCS continued its net employee addition from the previous quarter, adding 5,726 employees in the second quarter. The total employee count at the end of September reached 612,724, up from 606,998 in the June quarter. Attrition marginally increased by 20 basis points sequentially to 12.3% in the September quarter. Chief Human Resource Officer Milind Lakkad stated that the company welcomed 11,000 associates in the first half of the year and remains on track for planned trainee onboarding. TCS has announced its intention to hire 40,000 freshers in FY25.
Source: India drives TCS growth buzz