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Informist, Thursday, Apr. 10, 2025

 

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--TCS: Customer metrics continue to be resilient
--TCS: Still believe FY26 will be better than FY25 
--TCS: Global uncertainty leading to some delay in decision making 
--TCS: Not seeing any project cancellations; there are decision-making delays 
--TCS: International business grew around 0.6% QoQ in Jan-Mar 
--TCS: Expect delay in discretionary spending if global uncertainty continues 
--TCS: Will continue to hire from campuses as before 
--TCS: Some impact of global uncertainty seen in retail, mfg sectors 
--TCS: Spent INR 50 bln on capex in FY25 vs INR 27 bln in FY24 
--TCS: Don't plan to scale down on capex 
--TCS: Focus on business in North America will continue 
--TCS: We are okay with the current attrition rate 
--TCS: Deal duration did not change in Jan-Mar 
--TCS: Margin fall related to investments, not how macro is turning out 
--TCS: Initial BSNL deal should be completed by Apr-Jun 
--TCS: Have not seen any reduced commitment from clients 
--TCS: Average weighted deal tenure did not shift significantly in Jan-Mar 
--TCS: BFSI vertical continues to see good growth; deal momentum also good 
--TCS: We are finding strong traction in generative AI projects 
--TCS: Will announce wage hikes once we get clarity on global uncertainty 
 

 

By Anjana Therese Antony

 

MUMBAI – The management of Tata Consultancy Services Ltd. does not expect any major project cancellations due to the uncertainties arising from the imposition of US tariffs and the retaliatory tariffs by its key trading partners. The US is a major revenue-generator for the company, contributing around 50% of its top line. However, the company does see delays in decision-making as well as discretionary spending due to the uncertainty created by the US tariffs.

 

The "maximum impact" of the current global tariff war is expected to be reflected in hospitality and automobile sectors. "Other than auto, manufacturing seems to be still okay. Banking and financial services seem to be okay," the management said in a post-earnings press conference. There is some softness in the insurance space and "comms" or communications vertical is "something that we need to watch out for," the management said.

 

The company's biggest segment is banking, financial services, and insurance, accounting for over 31% of the total revenue in Jan-Mar, followed by consumer business which contributed over 15% to the revenue, and life science and healthcare at 10%. For the March quarter, the company's consolidated revenue rose just 0.8% from a quarter ago to INR 644.79 billion, and failed to meet analysts' estimate of INR 647.35 billion. The consolidated net profit for the quarter fell 1.3% to INR 122.24 billion and was lower than the Street's expectations of INR 125.63 billion. The BFSI vertical continues to see good growth, so is its deal momentum, the company said.

 

Even though there is no clarity about US' tariff policies, TCS is optimistic about its financial performance in 2025-26 (Apr-Mar). "While there could be some short-term uncertainties, FY26 would be a better year than FY25...We started seeing some amount of uncertainty creeping in March and resulting in some project delays," the management said. "We believe that maybe over the course of a next few months, this uncertainty should settle in and we should be back to business." The TCS management also said that it is not seeing any reduced commitment from its clients due to concerns about global economic growth and that its customer metrics continue to be resilient. The number of clients of the company in the $100 million-plus band in FY25 was 64, up 2% from the previous year. The duration of deals has not changed and the company is finding more traction in generative artificial intelligence projects, it said.

 

The Mumbai-based company also said that it will continue to focus on its North America business though the revenue contribution from this region has declined slightly from a year ago. "It (North America) will be a main geography, almost like a home market for us...there are large enterprises that invest in technology and we find there's greater opportunity for us to participate in those technology transformation in the further quarter," the management said. In the March quarter, North America contributed 48.2% to the company's top line, lower from 50% in the year-ago period. The company's overall international growth was 0.6% sequentially in the March quarter.  

 

On capital expenditure, the company said the figure was significantly higher in FY25, around INR 50 billion compared to INR 27 billion a year ago. "In terms of investments continuing into the next year, we don't plan to scale it down. Investments in talent, in innovation, infrastructure, our partnerships...there are no plans to scale any of them down," the management said. The company spent INR 1.458 trillion under employee benefit expenses in FY25, up nearly INR 57 billion from the previous year.

 

TCS saw its IT services 12-month trailing attrition increasing to 13.3% in Jan-Mar from 13.0% a quarter ago. However, the management said, "We are okay (with the current level of attrition) because our quarterly annualised attrition has come down this quarter (Jan-Mar) by 130 basis points. So we should be okay." The IT giant's employee headcount rose slightly to 607,979 as on Mar. 31 from 607,354 as of Dec. 31, 2024. When asked about its hiring plans, TCS said it will continue to hire from campuses and that it will announce wage hikes once the fog around global uncertainty clears.

 

Talking about the deal with its client Bharat Sanchar Nigam Ltd., the company said it will be completed by the June quarter. During the December quarter earnings call, the management had said that it has completed 70% of the INR 150-billion deal to deploy its fourth-generation network. When asked about the impact of lower contribution from the BSNL deal, the management said it "will not be able to call out what is the extent of BSNL degrowth." In its earnings preview report, JM Financial Services had estimated a $75-million decline in revenue due to the ramp-down in the BSNL deal, while Kotak Institutional Equities had estimated a decline of $30 million.

 

In the case of Jan-Mar margin, the company said the sequential decline was "more linked to" the investments made and higher expenses on purpose-driven initiatives on corporate social responsibility or marketing during the quarter, and not directly linked to how the macroeconomic scenario turned out in the past couple of weeks. The IT player's earnings before interest and tax margin had shrunk by 30 basis points on quarter to 24.2% in Jan-Mar from 24.5% in Oct-Dec. 

 

On Wednesday, shares of TCS had closed 1.4% lower at INR 3,246.60 on the National Stock Exchange. The stock has fallen nearly 20% since the December quarter results. End

 

US$1 = INR 86.68

 

Edited by Ashish Shirke

 

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