What TV doesn't, print can't; we deliver.
What TV doesn't, print can't; we deliver.
NEW DELHI: Tata Consultancy Services (TCS) has reported a mixed performance for Q3 FY25, with weak revenue growth but consistent margins, aligning with market expectations. The company’s revenue remained flat quarter-over-quarter, primarily due to a continued decline in discretionary spending and the usual furlough impact in Q3. However, TCS’s confidence in a strong recovery, especially in international markets, provides optimism for FY26.
TCS’s Q3 results saw a 0% revenue growth, driven by reduced discretionary spend and a significant client in the USD 100 million+ bracket experiencing a division, impacting overall revenue. In USD terms, revenue dropped 1.7% QoQ but grew 3.5% YoY, impacted by cross-currency fluctuations. On the positive side, TCS’s INR revenue decline was limited to just 0.4% QoQ due to the depreciation of the INR against the USD.
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Geographically, North America and continental Europe saw declines of 2.4% and 4%, respectively, while the UK market growth slowed to 4.8% YoY. However, India saw a significant revenue boost of 66%, contributing approximately 10% to the overall revenue.
In terms of verticals, TCS continued to face declines in BFSI, Life Sciences, and Communications. However, sectors like Consumer Business and Manufacturing showed positive growth. The company secured notable deal wins with a total contract value (TCV) of USD 10.2 billion in Q3, bringing the nine-month total for FY25 to USD 27.1 billion.
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Despite the revenue challenges, TCS managed to improve its EBIT margin by 40bps QoQ, reaching 24.5%. This improvement was driven by effective cost optimization measures, such as pyramid correction and a continued focus on higher utilization. The margin was further supported by maintaining a flat sub-contractor cost.
Looking ahead, TCS is confident in a recovery beginning in FY26, with potential high single-digit growth in international markets. This could offset any revenue shortfall from the BSNL 4G deal. However, the company anticipates higher attrition rates as growth accelerates, which may increase costs. Given these factors, TCS’s margin estimates for FY26 and FY27 have been revised downward by 20-70bps.
Elara Securities has revised its target price for TCS to INR 4,530 (from INR 4,680), maintaining an “Accumulate” rating. While the short-term outlook appears challenging, the company’s focus on international growth and margin improvements positions it for a stronger recovery in the upcoming fiscal year.
