TCS Q1 Results: Margin Contracts, But Long-Term Forecast Maintained

Tata Consultancy Services Ltd. on Thursday reaffirmed its commitment to achieving a margin above 26%, despite experiencing its first contraction in four quarters during the April-June period, coinciding with a company-wide salary increase.

The company aims to maintain margin levels of 26-28%, Chief Financial Officer Samir Seksaria told reporters, adding that margins will increase quarter by quarter. The company last achieved a margin of more than 26% during the fourth quarter of the financial year ending March 2021.

India's largest software services provider reported an EBIT margin of 24.7% for the first quarter of the financial year, down from 26% in the previous quarter, according to its stock exchange notification. Analysts tracked by Bloomberg had estimated a margin of 24.5%.

TCS Q1 Results: Key Highlights (QoQ)

• Net profit fell 3.2% to Rs 12,105 crore (Estimate: Rs 11,959 crore).

• EBIT declined 3% to Rs 15,442 crore (Estimate: Rs 15,245.5 crore).

Revenue rose 2.2% sequentially to Rs 62,613 crore in the three months ending June. Bloomberg analysts had projected Rs 62,128.4 crore. Revenue in dollar terms increased by 2.7% compared to the March quarter, reaching $7.5 billion. In constant currency terms, TCS reported a sequential revenue growth of 2.2%.

"For BFSI and North America growth to reflect on annual print, more positive quarters are required," Chief Executive Officer K Krithivasan said. He noted that the BFSI segment in North America grew better than in Europe and the UK.

The growth patterns and discretionary demand from clients are expected to return in the retail, manufacturing, and other segments, according to Mayuresh Joshi of Marketsmith India.

The company's Total Contract Value stood at $8.3 billion in the three months ending June, down from $13.2 billion in the preceding quarter. North America TCV was $4.6 billion, with the BFSI segment contributing $2.7 billion.

The overall pipeline of deals remains at an all-time high, CEO Krithivasan told reporters. "At the current revenue range, we are looking at $7-9 billion TCV as a comfort range."

As of June 30, TCS increased its headcount by 5,452, bringing the total to 606,000, with women making up 35.5% of the workforce and representation from 151 nationalities. The IT services attrition rate was 12.1% over the past twelve months.

"Our focus on employee engagement and development has resulted in high retention rates and strong business performance," Chief HR Officer Milind Lakkad said in a statement. "I am pleased to announce the successful completion of our annual increment process."

• Expect fiscal 2025 will be better than 2023-24.

• Too early call if growth momentum is sustainable.

• Market sentiment remains the same as last quarter.

• Impact of increments were around 170 basis points.

• Total deal pipeline continues to remain near all-time high.

• Revenue from BFSI and North America will take more quarters to turn positive on a yearly basis.

• Fresher hiring will be close to 40,000, depending on market conditions.

• Some deals did not close in June quarter, was pushed further.

• Mega deals are lumpy, but large deals are healthy.

• AI Cloud and Cybersecurity will continue to lead growth in future.

Shares of TCS closed at Rs 3,902 apiece on Thursday, before the release of its first quarter earnings. Since announcing the results for the March quarter on April 12, the stock has declined 2%, compared to nearly 7% gain in the benchmark Nifty 50.