TCS Q1 Results Review - Discretionary Spending Remains Lukewarm: Motilal Oswal

Motilal Oswal Report

Tata Consultancy Services Ltd. reported revenue of $7.5 billion in Q1 FY25, up 1.9% QoQ in USD terms, beating our estimate of ~1.3%. Growth was driven by strong performances in India (up 14.1% QoQ/59.0% YoY, aided by BSNL scale-up), the UK (up 2.5% QoQ) and North America (up 0.9% QoQ).

TCS reported a deal total contract value of $8.3 billion, within its usual range but down 37.1% QoQ and 18.6% YoY. The book-to-bill ratio was 1.1 times.

BFSI, particularly the banking clients in the U.S., returned to growth in the quarter. The nature of demand was largely the same, and clients continued to prioritize cost optimization projects.

While growth was driven by the BSNL deal ramp-up, verticals in key markets such as communications and retail continued to be weak. The ~4% decline in communications was concerning, as there was a growing consensus that spending cuts in the sector had bottomed out after a weak FY24.

A fed pivot is probably a meaningful catalyst for telecom clients, but we believe a more meaningful turnaround in this vertical could only be seen once network rollout capex trickles down to services spending/opex. This could be more gradual even in case of rate cuts, in our opinion.

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