TCS Q1 FY25 Earnings: Impressive Growth, Strong Margins But Soft TCV

Tata Consultancy Services (TCS), a leading player in the Indian IT sector, kicked off the financial year with impressive first-quarter results. On July 11, the company announced a 9% year-on-year (YoY) increase in Q1 net profit, reaching Rs 12,040 crore, meeting market expectations. 

Revenue and Profit Margins Show Positive Trends

The IT behemoth noted a 5.4% YoY increase in revenue, amounting to Rs 62,613 crore. Operating margins also showed impressive growth, expanding by 1.5% from the previous year to 24.7%, with the net margin standing strong at 19.2%.

Geographical and Sectoral Growth Insights

TCS exceeded expectations in several markets, with notable growth led by emerging markets. India showcased exceptional YoY growth of 61.8%, primarily fuelled by the BSNL deal. The UK followed with a healthy 6% increase. However, North America saw a slight decline by 1.1%, while Continental Europe remained stable.

Dividends & Record Date

TCS has declared an interim dividend of Rs 10 per share, set for a record date of July 20, 2024, with dividends to be disbursed on August 5, 2024.

Contract Values and Employee Attrition Updates

While overall results were positive, the total contract value (TCV) was softer than anticipated at $8.3 billion, marking a decrease both quarterly and annually. Some of the deals won in the quarter include a generative AI and cloud transformation deal with Xerox, a GenAI partnership with Amazon Web Services and a BFSI deal with Burgan Bank few.

However, TCS reported a slight improvement in its IT services attrition rate, which decreased to 12.1% over the last twelve months from the previous quarter's 12.5%, indicating a stable workforce environment essential for sustained growth.

Management Commentary & Outlook

K Krithivasan, the CEO and Managing Director, expressed satisfaction with the company’s performance, highlighting expansion across industries and markets. TCS is not only growing its client base but is also investing in new technologies and capabilities, such as a new AI-focused TCS PacePort™ in France and an IoT lab in the US.

Samir Seksaria, the CFO, commented on the financial health of the company, noting the robust operating margin performance despite annual wage increments. He emphasized the company's focus on strategic investments and operational excellence, which are essential for long-term stakeholder value.

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