TCS Q3FY25: Seasonal Challenges Persist, But Positive Outlook Inspires Confidence
The leading Indian IT company, Tata Consultancy Services (TCS), reported a 12% increase in its consolidated net profit for the December quarter, which came to Rs 12,380 crore on Thursday. This is almost in line with Dalal Street’s forecast of Rs 12,490 crore and represents an increase from the Rs 11,058 crore recorded in the same quarter last year. TCS CFO, Samir Seksaria stated that the company’s great execution, effective cost control, and strategic currency risk mitigation all helped to boost margins and solid free cash flows during the quarter, despite substantial cross-currency volatility. Additionally, long-term company growth should be well supported by focused expenditures in infrastructure and talent.
Details of TCS Q3 Results & Market commentary
Revenue
The IT behemoth TCS reported sales for the December quarter of Rs 63,973 crore in constant currency, up 5.6% from Rs 60,583 crore in the same period last year. Nevertheless, the December quarter’s income was less than the Rs 64,750 crore Dalal Street had predicted. The company’s operating margin for the December quarter was 24.5%, which represented a 40 basis point sequential gain but a 50 basis point year-over-year fall. TCS, meanwhile, stated that at the end of the December quarter, its net margin was 19.4%.
Because of the local currency’s depreciation against the dollar throughout the quarter, analysts had projected an average sequential decline of 0.4% in dollar revenue and a 0.5% increase in rupee revenue. The largest software exporter in the nation, on the other hand, saw a 0.5% quarterly decline in revenue to Rs. 63,973 crore and a 1.7% decline to $7,539 million. The impact of furloughs and seasonal decrease in demand is more pronounced when the top line declines more than anticipated.
Dividend
TCS has announced a total payment of Rs. 76 per share which comprises of a special dividend of Rs. 66 per share and an interim dividend of Rs. 10 per share. This dividend payout would be done on 3rd February, 2025 and the record date is set to be 17th of January, 2025. The stock might receive some boost from this. The company was trading at a trailing price-earnings (P/E) ratio of 30 at Thursday’s closing price of Rs4,036.7 on the BSE, compared to a five-year average P/E of about 33.
Deals
According to TCS’s filing with the exchange, the company’s Total Contract Value (TCV) increased significantly during the December quarter, laying a solid basis for future growth. TCV was $10.2 billion in the December quarter, and the book-to-bill ratio was 1.4. The key drivers of such robust TCV figures include 1.1% hike in consumer business group, 3.4% increase in energy and utilities segment and whooping growth of 40.9% in regional markets.
After two quarters, it surpassed the $10 billion threshold, suggesting a slow but steady rebound in clients’ discretionary spending. Due to geopolitical and economic uncertainty, clients have been focusing more on maintenance projects and less on transformational deals during the last few quarters. In the upcoming quarters, clients are anticipated to place more emphasis on discretionary spending due to the incoming administration in the US, which is the biggest market for Indian IT exports. The consumer business and banking, financial services, and insurance (BFSI) verticals were the main drivers of the TCV progress in the December quarter.
Hiring and attribution
There were 607,354 workers at TCS as of December 31. In IT services, the company’s last twelve months (LTM) attrition rate was 13.0%. According to TCS Chief Human Resources Officer Milind Lakkad, the business promoted more than 25,000 employees in the December quarter, bringing the total number of promotions this fiscal year to over 110,000. Further he added that the company is indulging in investments in the general well-being and upskilling of our staff. This year’s campus hiring is proceeding as planned, and plans are underway to onboard more university hires the next year.
However, the company lost 5,370 workers on a net basis in a row, bringing its total workforce down to 6,07,354. From 12.3% in the prior quarter, the attrition rate gradually increased in the third quarter. The company claimed a renewed pace in new order wins, which can be linked to the growing influence of global capability centers (GCCs) established in India by worldwide clients.
Conclusion
According to analysts, the company’s Q3 FY2 earnings reports are the slowest since it began releasing quarterly figures in constant currency terms in FY 2013, more than ten years ago. It used to report in dollar terms on a quarterly basis.
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