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Informist, Wednesday, Apr. 9, 2025

 

By Anjana Therese Antony

 

MUMBAI - India's information technology behemoth Tata Consultancy Services Ltd. is expected to post another quarter of muted earnings growth in Jan-Mar, in line with what is expected for the sector. This will likely be due to a fall in revenue from the company's key telecom client Bharat Sanchar Nigam Ltd., no changes in client budgets, and furloughs, according to brokerages tracking the firm. Increasing worries about a likely recession in the US, the country TCS earns around half of its revenue from, pose serious questions about growth for the company and the sector.

 

For the three months ended March, the Mumbai-based company's consolidated net profit attributable to owners is expected to rise 1.5% from a quarter ago to INR 125.63 billion, according to the average of estimates from 16 brokerage houses. This would be the second consecutive quarter of a rise in the bottom line for the company. From a year-ago perspective, this would translate to 1% growth. PhillipCapital India has the highest net profit estimate of INR 128.27 billion for the company, while Elara Securities has the lowest estimate of INR 122.21 billion.

 

Consolidated revenue is expected to increase 1.2% sequentially and 5.7% on year to INR 647.35 billion, according to the average of estimates. Of the 16 broking firms, PhillipCapital again has the highest top line estimate of INR 654.36 billion and Nirmal Bang Institutional Equities has the lowest projection of INR 637.65 billion. In the December quarter, the company had posted a sequential decline in its top line for the first time in 18 quarters.

 

Analysts expect the banking, financial services, and insurance vertical to have driven the little growth in the top line, while other segments such as manufacturing, retail, and healthcare likely saw sluggish growth. TCS had posted a consolidated net profit of INR 123.80 billion in Oct-Dec on revenues of INR 639.73 billion.

 

India's biggest IT player in terms of market capitalisation is scheduled to release its quarterly results Thursday. It will also consider paying a final dividend to its shareholders for 2024-25 (Apr-Mar). The post-earnings press conference of TCS is scheduled at 1730 IST and a conference call with analysts is at 1900 IST. The Indian equity market is shut Thursday on account of Mahavir Jayanti.

 

Broking firms said investors will closely monitor the management's comments on the likely impact of US tariffs, any project cancellations since January, client budgets for 2025, trends in deal pipeline conversion, and outlook on operating margin and discretionary spending across verticals. TCS is usually the first IT company to release its quarterly results and is widely monitored to identify the earnings trend in other domestic IT companies.

 

BSNL DEAL, OTHERS

Analysts continue to raise concerns about the fall in contribution from the BSNL deal, which is this likely to have led to a slight decline in revenue growth in dollar terms. JM Financial Services estimates a $75-million decline in revenue due to the ramp-down in the BSNL deal and expects the revenue growth in constant currency terms to fall 0.1% sequentially. Kotak Institutional Equities estimates a decline of $30 million in revenue from BSNL.

 

During the post-earnings call after the December quarter earnings, the management had said the company has completed 70% of the INR 150-billion deal from BSNL to deploy its fourth-generation network. TCS had also said it hopes to compensate for the lack of revenue from BSNL in multiple other ways, both internationally and domestically. It had also said that the company would look for new businesses with the capabilities it acquired from the BSNL deal.

 

However, overall deal wins are expected to have been stable in the March quarter, at least five broking firms noted in their earnings preview reports. "We expect deal wins to be steady in the band of $8 billion-$10 billion," brokign firm Prabhudas Lilladher said in its report. This would be 24-39% lower than the $13.2 billion of deals it won in the year-ago period.

 

The company had won contracts worth $10.2 billion in the December quarter. Investors had cheered these strong deal wins, though TCS' revenue had fallen for the first time in 18 quarters, taking the share price nearly 6% higher to INR 4,265.65 on Jan. 10. This was the stock's biggest one-day gain since July 2024. Since then, the stock has fallen nearly 23%.

 

On Tuesday, shares of TCS snapped a six-day losing run and closed 0.6% higher at INR 3,292.95 on the National Stock Exchange. The stock has declined over 7% in the last seven days and nearly 20% so far in 2025 due to increasing worries about a likely recession in the US.

 

US, OTHER GEOGRAPHIES

Increasing worries about US President Donald Trump's tariff policies and tit-for-tats from its key trading partners are raising worries about a likely recession in the US, a key revenue hub for Indian IT companies. Nearly 50% of TCS' total revenue in the December quarter was from the US. Its revenue from North America had declined 2.3% on year in constant currency terms during the quarter, while that from Latin America had risen 7%.

 

"We estimate (IT) industry revenue to decline by 1-2% in FY26 assuming a moderate recession," Kotak Equities said in a report. However, the outcome is not expected to be as bad as it was in the previous recessions. "Our current estimates and assigned multiples assume a slowdown in global economic growth but not a recession," it said.

 

Analysts also said that they will closely watch for the management's comments on reasons for the company's struggle to grow its international business, which has been "insipid" due to ramp downs and modest deal wins. In the UK, which is the company's second-highest revenue-generating region, TCS had reported over 4% revenue growth in constant currency terms during the December quarter.

 

MARGIN

Broking firms' views are divided about the company's operating margin, with some expecting the figure to rise sequentially, and another section anticipating the figure to be largely unchanged. The company's earnings before interest and tax margin is expected to be 24.1-24.9%, as per estimates from 13 broking firms. In the December quarter, the metric had increased by 40 basis points sequentially to 24.5%.

 

Prabhudas Lilladher expects the EBIT margin of TCS to improve by 20 bps from a quarter ago as "benefits of lower third party equipment costs will come down gradually." Several other broking firms had similar views.

 

ICICI Securities believes that the IT giant's EBIT margin will be flat. This would be because the tailwinds from favourable currency movement and low-margin BSNL deal ramp-down would be likely offset by investments in hiring, re-skilling, and incentivising the talent pool. Elara Securities and Nomura Global Markets Research are among the brokerages that expect the margin to be flat.

 

Following are the Jan-Mar earnings estimates for Tata Consultancy Services based on reports from 16 brokerage firms in descending order of the estimate of net profit:

 

Broking Firm	Net Profit  (in INR million)	Net Sales  (in INR million)	EBIT margin  (in %)
PhillipCapital (India) Pvt Ltd	128,265	654,362	24.9
Systematix Shares and Stocks (India) Ltd	128,029	648,750	24.7
InCred Research Services Pvt Ltd	126,884	649,813	24.7
Sharekhan Ltd	126,730	649,620	24.8
Kotak Institutional Equities	126,636	649,639	24.9
IDBI Capital Market Services Ltd	126,360	646,011	24.77
HSBC Global Research	126,250	653,245	24.9
Antique Stock Broking Ltd	126,009	648,402	24.5
HDFC Securities Ltd	125,700	648,590	24.9
Nuvama Wealth Management Ltd	125,683	645,505	--
Emkay Global Financial Services Ltd	125,182	646,441	--
ICICI Securities Ltd	125,016	647,728	24.4
Nirmal Bang Equities Pvt Ltd	124,324	637,654	24.1
JM Financial Institutional Securities Pvt Ltd	123,567	643,510	24.4
Prabhudas Lilladher Pvt Ltd	123,200	643,400	24.6
Elara Securities (India) Pvt Ltd	122,213	645,000	--
Average	125,628.00	647,354.38	24.66

 

End

 

US$1 = INR 86.57

IST, or Indian Standard Time, is five-and-a-half hours ahead of GM

 

Edited by Ashish Shirke

 

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