The country’s largest information technology services firm, Tata Consultancy Services (TCS) on Thursday reported a net profit of Rs 11,909 crore during the July-September quarter, which was down 1.1% on sequential basis. The company missed Bloomberg consensus estimate of Rs 12,547 crore, on the back of higher expenses.
Consolidated revenues during the period was up 2.6% sequentially to Rs 64,259 crore, beating estimates of Rs 64,178 crore.
K Krithivasan, chief executive officer and managing director, said in the analysts call that the cautious trends of the last few quarters continued to play out in this quarter also. This underlines that clients continue to hold back large investments.
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Krithivasan said that globally, clients continue to prioritise efficiency through cost transformation programmes, and demand for discretionary deals with low immediate ROI (return on investment) remains relatively subdued.
Operating margin fell 60 basis points quarter-on-quarter to 24.1% with the total expenditure rising over 3% sequentially to Rs 48,956 crore due to third-party expenses on account of a large transformational project.
“We made strategic investments this quarter in talent and infrastructure to ensure sustainable growth,” Samir Seksaria, chief financial officer, said.
“The margin headwinds were in form of the higher third-party expenses on account of a large transformational project… and that project is running at its peak and that impact is about 60 basis points. We had incremental investments in talent and infra. That combined impact was about 70 basis points. And this was offset by mainly currency and a little bit of one-off not recurring from Q1,” he added.
On the deal front, the company’s total contract value rose to $8.6 billion from $8.3 billion reported in the previous quarter.
“Like we explained last quarter and previous quarters also, TCV always has some lumpiness… And in the absence of those mega deals, I think it’s a comfortable number, with our pipeline being nearly at an all-time high. TCV is within our comfort range and it has shown sign of improvement,” Krithivasan said.
VERTICAL & GEOGRAPHICAL PLAY
The revenue contribution from most of the verticals fell sequentially during the quarter. Sales from its largest vertical, the financial services, saw a 10 basis points sequential decline, while the second largest contributor, consumer business, fell 30 bps sequentially.
Revenue from life sciences and healthcare declined by 60 bps quarter-on-quarter, while manufacturing and technology services fell 20 bps and 10 bps, respectively. And, revenue from communication and media fell 30 bps.
Meanwhile, revenue from energy, resources and utilities rose 10 bps and those of regional markets and others rose 150 bps on the back of ramp up in the BSNL deal.
On the geographies front, revenue contribution from North America fell and sales from Europe, Asia Pacific and India rose. The revenue from North America fell 190 bps sequentially to 47.6% and that of UK and Continental Europe rose 10 bps and 20 bps to 17% and 14.6%, respectively, in the quarter ended September.
Revenues from India rose 140 bps to 8.9%. The sales in the region has also increased by a whopping 95% on a year-on-year basis on the back of ramp by in the BSNL deal.
“Some recent trends that we are seeing in our major segments are in BFSI, financial institutions in the US are looking at sustaining the growth momentum with the Fed’s first rate cut in four years… Amidst an uncertain geopolitical situation, our biggest vertical, BFSI showed signs of recovery. We also saw a strong performance in our growth markets,” Krithivasan said.
Further, the company also said it has a was seeing strong traction in the GenAI space. The IT major has as many as 600 AI or GenAI engagements, which have been deployed or are in various stages of progress, with over 80 being in production. In the June quarter the company had said it has $1.5 billion worth AI/GenAI deals in its pipeline.
“We are seeing continued momentum in AI/GenAI adoption, with the underlying technology gaining maturity at a very rapid pace. Our customers are increasingly concentrating on integrating AI throughout their entire enterprise value chain, rather than working on isolated use cases,” the company said.
TCS also declared a second interim dividend of Rs 10 per equity share.
UNCERTAIN ON GROWTH
While the company’s revenue rose in the quarter ended September, it does not see full fledged growth coming back in fiscal 2025. However, the IT major sees the stability in the macro as an initial sign of confidence.
“With the easing of interest rate environment, consumer confidence and industry confidence will get better. This can potentially lead to improved investment.
Customers are focused on operational efficiency and upgrades for the future with an eye on efficiency and automation. While pipeline continues to remain strong, we are able to see large transformational deals in the BFSI,” Krithivasan said.
Irrespective of the uncertainty, the company said it stays committed to end Q4 of FY25 at an aspirational operating margin of 26%.
From: financialexpress
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