Wage hikes-demand slowdown combo weighs on TCS first quarter net profit

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Driven by AI, Cloud, IoT

Much of the incremental growth came from the Rs 15,000 crore deal with state-owned telco Bharat Sanchar Nigam Ltd (BSNL) signed last year that led to its India business showing a jump of 61.8% from the year earlier.

While chief executive K Krithivasan continues to believe that FY25 will be better than FY24, it is "too early" to say whether the growth momentum is sustainable, he said.

"The continue to remain the same as were last quarter. There is nothing new to add in terms of market sentiment," Krithivasan said.

TCS has a deal pipeline of $8.3 billion although some of these are taking time to be finally sealed.

The company reversed the drop in hiring in FY24 with a net addition of 5,452 in the first quarter and also added close to 11,000 trainees. In the full year, it will hire close to 40,000 from campuses.

GenAI project pipeline doubles

TCS said that AI, cloud, enterprise solutions, internet of things and digital engineering (IOT & DE) as well as cybersecurity led growth in the June quarter. Its generative AI (GenAI) project pipeline doubled to $1.5 billion, up from $900 million in the March quarter.

After climbing for three quarters in a row, TCS saw narrow to 24.7% in the June quarter, down by 130 basis points from the preceding three-month period. That's still the widest margin among larger Indian IT firms. One basis point is 0.01 percentage point.

"In spite of the usual impact of the annual wage increments in this quarter, we have delivered strong operating margin performance, validating our efforts towards operational excellence," said chief financial officer Samir Seksaria. The company will continue to increase efficiency and employee utilisation to increase margins, he said.

TCS announced an interim dividend of Rs 10 per share. TCS shares ended marginally higher at Rs 3,922.70 Thursday, on an almost flat BSE Sensex. The earnings were announced after market hours. Since the beginning of June, TCS shares have risen 6.9%.

The company reported a solid quarter with strong revenue growth, up 2.2% from the January-March period in constant currency, beating the estimate of 1.5% growth, said Sanjeev Hota, head of research, Sharekhan by BNP Paribas. "TCS Q1 numbers augur well to improve the sentiments for IT stocks and expect positive rubs off on the overall sector," he said.

BFSI segment

In the banking, financial services and insurance (BFSI) vertical, the company's largest, North America grew better than Europe, signalling recovery in the key region, Krithivasan said. Overall though, BFSI shrank 0.9%, while life sciences and healthcare witnessed growth of 4% and manufacturing rose by 9.4%.

Geographically, North America contracted 1.1%, UK grew 6% and the Asia-Pacific expanded 7.6%. India business jumped 61.8% as its market share increased to 7.5% from 4.9% a year ago.

"There is no specific delay in orders getting closed," the CEO said. "This particular quarter we had some major projects which we were expecting to close within Q1 that did not close, it got moved into Q2... As I said, our order book pipeline is quite healthy as it was in the previous quarter. Previous quarter we had $13.2 billion of TCV (total contract value), we are able to replenish all that."

In the quarter, TCS said that over 270 AI and GenAI engagements have been deployed or are in various stages of progress.

"Engagements that have successfully gone live include those enabling dynamic pricing strategies, improved product quality, transformed customer experience and significant productivity uplift in business operations, software development and IT operations amongst others," thek company said in a statement.