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Informist, Thursday, Apr. 10, 2025

 

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--TCS: AI for business picking up traction, to see more interest ahead 
--TCS: No major change in mix of renewal, new orders in Jan-Mar vs Oct-Dec 
--CONTEXT: TCS management's comments in post-earnings conference call 
--TCS: Looking at opportunity in India, overseas to replace BSNL revenue 
--TCS: See headwinds for FY26 margin if current global uncertainty continues 
--TCS: Should be able to improve margins in FY26 
--TCS: See more uncertainty in Apr-Jun this year compared to last year 
 

 

By Arya S. Biju and Anshul Choudhary

 

MUMBAI – Tata Consultancy Services Ltd.'s operating margin may face headwinds in 2025-26 (Apr-Mar) if the macroeconomic uncertainty because of US President Donald Trump's tariffs and the resultant global trade war continues, Samir Seksaria, chief financial officer of the company, said in a post-earnings analyst call on Thursday. Prolonged uncertainty around the tariffs would lead to lower operating leverage, including lower utilisation, delay in demand, and absence of cross-currency margin benefit compared to FY25, Seksaria said.

 

However, the company's management is optimistic and expects the global uncertainty to last only for a short term. The company expects broad-based revenue growth to drive efficiency and better operating leverage, leading to improved margins in FY26. Further, it believes that there is still potential to boost margins. 

 

The company saw some delays and deferrals in decision-making and discretionary projects in some of the segments starting from late February and the situation worsened in March. These delays were mostly seen in insurance and consumer business segments in the US, the management said.

 

Several analysts questioned the company's drop in margin during the quarter and the financial year. The company's margin for the March quarter fell 180 basis points on year to 24.2%, and that for the full year was down 30 bps to 24.3%. The management cited a hit of 200 bps due to annual wage increases and tactical interventions, which largely included promotions, for the drop in margin. The company's ongoing investments in infrastructure and capability building also had a negative impact of 130 bps on the margin. However, depreciation of the rupee against the dollar had a positive impact of 80 bps on the FY25 margin.

 

On deal wins in the March quarter, the company said it did not notice a major change in the mix between renewals and new deals compared with the previous quarter.

 

The company acknowledged that tariff-related uncertainty has clouded its visibility on growth in the near term. "When we got into Q1 (Apr-Jun) of last year (FY25), probably we had more visibility than what we have today," the management said.

 

Going forward, if the uncertainty clears, the company expects its international business as well as the overall business to do better in FY26. TCS has seen a significant increase in deal wins across artificial intelligence for businesses and AI for IT in the last few quarters and expects this to continue going forward and pick up pace after the tariff-related uncertainty ends.

 

On the impact of ramp-down of the BSNL deal, the management said it is looking at opportunities in India as well as globally to replace revenue from BSNL. The technology services major had bagged the INR 150-billion deal from BSNL in May 2023.

 

Earlier in the day, the company reported a consolidated net profit, or profit attributable to shareholders, of INR 122.24 billion for the March quarter, down 1.3% on quarter and below analysts' expectation of INR 125.72 billion. The consolidated revenue from operations was INR 644.79 billion, up marginally on quarter but short of analysts' expectation of INR 647.57 billion. On Wednesday, shares of TCS closed 1.4% lower at INR 3,246.60 on the National Stock Exchange. Financial markets in India were shut Thursday on account of Mahavir Jayanti.  End

 

Edited by Ashish Shirke

 

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