Analyst Meet / AGM     10-Jan-25
Conference Call
Tata Consultancy Services
Stronger performance in CY25 and FY26 versus CY24

TCS hosted a conference call on January 09, 2025. In the call the company was represented by Mr K Krithivasan-CEO and MD, R Samir Seksaria-CFO and Mr Milind Lakkad-CHRO.


Key Takeaways of the call

In Q3FY2025, the company’s performance was consistent with quarterly seasonality.


Revenue: Revenue during Q3FY2025 quarter increased by 5.6% YoY to Rs 63973 crore. In US $ terms revenue for the quarter stood at US $ 7539 million a growth of 3.6% YoY. In CC terms growth stood at 4.5% YoY

By Industry verticals, BFSI grew by 0.9% YoY, Consumer business grew by 1.1% and Health care declined by 4.3% YoY in CC terms, manufacturing grew by 0.4% YoY and Energy, Resources and Utilities vertical grew by 3.4% YoY and regional markets grew by 40.9% YoY. While Technology and services and communication and media declined by 0.4% and 10.6% respectively in cc terms.

By markets all growth markets grew above the company average. India grew by 70.2% YoY in CC terms, middle East and Africa grew by 15.0%, Asia Pacific grew by 5.8% YoY  and Latin America grew by 7.0% YoY in CC terms. Among major markets United Kingdom grew by 4.1% YoY in CC terms, while continental Europe declined by 1.5% YoY and North America declined by 2.3% YoY in CC terms.

Margins: EBIT margins for the quarter stood at 24.5% in Q3FY2025, a sequential improvement of 40 bps. Headwinds of furloughs and Q3 seasonality was offset by operating efficiencies which was improved by productivity, improved utilization and pyramid.

Net margin in Q3 was 19.4%

Human resource:

Total work force stood at 607354 with a net decrease in head count by 5370 on a sequential basis.

The company campus hiring for the year is going according to plan and preparations are afoot to onboard a higher number of campus hires next year.

LTM attrition for IT services stood at 13.0% in the quarter.

Work force remains diversified across 152 nationalities and 35.3% women employees.

TCSers have clocked 40.1 million learning hours year to date, and acquired 3.8 million competencies year to date.

The company promoted over 25,000 associates in Q3FY2025 which brought the total promotions this financial year to more than 110,000.

Client Metrics: The company has added 3 clients in the US $100 million+ bucket, 17 clients in the US $ 10 million + category,  29 clients in US $ 5 million category and 21 clients in US $ 1 million category on a YoY basis.

 

Order book:

The company’s reported TCV order book of US $10.2 billion for the quarter Q3FY2025 which was exceptionally strong and broad based.

TCV of deals signed in North America stood at US $ 5.9 billion. BFSI TCV stood at US $3.2 billion, Consumer Business TCV stood at US$1.3 billion.

The company achieved large deal wins across various markets and industries resulting in double digit growth in TCV on a YoY basis.

Strong deal pipe line and TCV gives company confidence going forward

The company’s some of the deal wins in Q3FY2025 include a 15-year end-to-end digital solution deal with Ireland’s Department of Social Protection, a multi-year AI-ready, cloud native data landscape deal with Air France-KLM, a transformation deal with Bank of Bhutan, a five-year deal extension with Denmark’s Telenor, and a three-year hardware and software deal for the Indian government’s SPARSH (System for Pension Administration- Raksha)

BSNL: 70% of the contract is completed and the company expects the revenue to taper of from Q4, Q1FY2026 or max Q2FY2026.

Outlook:

The customers priorities remain cantered around cost optimization and business transformation during the quarter.

Gen AI, AI and cloud services has provided significant growth for the company in Q3FY2025.

Clients are investing in building robust data foundation and taking value chain approach to AI and Gen AI transformation.

The company expects clients IT budget to be similar in CY2025 with a positive bias.

The company is witnessing signs of revival in discretionary spending in BFSI and retail. The company also expects manufacturing, healthcare and life sciences to start witnessing growth as near term challenges have bottomed out.

For BFSI new-year promises cautious optimism with reducing inflation, reducing unemployment numbers and stable government. Headwinds will continue due to unresolved geo political situation and uneven growth. Customers are focussed on operational efficiencies and modernization of IT with a eye on future growth. BFSI industry is the leading adopter of AI and Gen AI and the company witnessed successful deployment of AI and gen AI in the production.

Consumer business returned to growth on a sequential basis in Q3FY2025 and primarily driven by retail in all major markets. The company is helping clients navigate change in customer expectation, enrich digital transformation and prioritize technology modernization for sustainable solutions in a uncertain macroeconomic environment. The company performed wll in UK, MEA and Asia pacific markets. However it was slow in US due  to market specific issues and strained profitability of clients.

Clients IT budgets in technology, software and services industry continue to remain flat.

In health care and life-science vertical, client specific challenges called out by the company are largely stabilised. Customers are investing in scaling digital manufacturing capabilities and building resilient supply chain. The company is well positioned to capitalize on the opportunity.

The company continued to witness softness in manufacturing due to a combination of macro and industry specific issues in auto and aerospace. However, the company witnessed a good number of large deal wins during the quarter and witnessing a strong pipeline for the future. The company expects manufacturing to bottom out in Q4FY2025 and than the growth to come back.

The company is witnessing good traction in growth markets. Clients in growth markets are investing in digital transformation including cloud migration, cloud native applications and advanced data analytics.

Factors like easing interest rates softening inflation and reduced political uncertainty in the US after the presidential elections as other factors that will steer a revival in discretionary demand for the company. In Q3, the company witnessed better mix of deal wins along with a shortened deal cycle which makes the company confident over the early signs of discretionary demand revival in CY25 and FY26.

Reduction in headcount in Q3fy2025 is not a reflection of the demand environment.

The company expects stronger performance in CY25 and FY26 versus that seen in CY24.

Company remains committed to long term EBIT margins in the range of 26-28%.

Dividend: The company declared a third interim dividend of Rs 10 and a special dividend of Rs 66 per equity share of Re 1 each of the company.

 

Management commentary:

K Krithivasan, Chief Executive Officer and Managing Director, said: “We are pleased with the excellent TCV performance in Q3 which was well-rounded across industries, geographies and service lines lending good visibility to long-term growth. BFSI and CBG returning to growth, continued stellar run of Regional Markets and early signs of revival in discretionary spend in some verticals give us confidence for the future. Our continuing investments in upskilling, AI/Gen AI Innovations and partnerships sets us up to capture the promising opportunities ahead.”

Samir Seksaria, Chief Financial Officer, said: “In a quarter that saw significant cross-currency volatility, TCS’s strong execution, cost management and deft currency risk management helped deliver healthy margin improvement and free cash flows. Disciplined investments in talent and infrastructure should lend good support to long-term business growth.”

”Milind Lakkad, Chief HR Officer, said: “We promoted over 25,000 associates this quarter which brought the total promotions this financial year to more than 110,000. We continue to invest in employee upskilling and overall well-being. Our campus hiring for the year is going according to plan and preparations are afoot to onboard a higher number of campus hires next year”.

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