Tata Consultancy Services Ltd Q1 FY25 Earnings Conference Call Insights

Key highlights from Tata Consultancy Services Ltd (TCS) Q1 FY25 Earnings Concall

• Revenue Growth
  • Q1 FY ’25 revenue grew 5.4% in rupee terms, 4.4% in constant currency, and 3.9% in dollar terms.
  • markets returned to growth sequentially.
  • Almost all verticals saw positive sequential growth, except for CMI.
  • Dollar revenue reached $7,505 million.
  • Growth attributed to ability to deliver large-scale, complex engagements and mission-critical services.
• Margin Performance
  • Q1 operating margin was 24.7%, despite 170 basis points headwind from annual wage hikes.
  • Net income margin in Q1 was 19.2%.
  • EPS grew 10% year-over-year.
  • Increased third-party expenses were offset by operating efficiencies.
  • Improvements included better productivity, improved utilization, and reduced subcontractor expenses.
• Product Portfolio Updates
  • Ignio cognitive automation software saw 24 deal wins and 10 go-lives.
  • TCS BaNCS had five wins and 12 go-lives in financial services.
  • BaNCS for insurance had one win and six go-lives.
  • Quartz blockchain platform had one win and one go-live.
  • TCS ADD platform in life sciences had two new wins and four go-lives.
  • TCS iON administered exams for over 11.8 million candidates.
• Workforce Updates
  • Total workforce at the end of Q1 was 606,998.
  • TCS onboarded 11,000 trainees in the first quarter.
  • Preferential induction will continue throughout the year.
  • Attrition during the quarter was 5,452.
  • Employees logged 11 million learning hours and acquired 1.2 million competencies.
  • High performers received double-digit wage hikes, while others received 4.5% to 7% increases.
  • LTM attrition in IT services was 12.1%, down 40 basis points sequentially.
  • The company plans to build the largest AI-ready workforce through organic reskilling.
• Sector Growth
  • Strong start to the fiscal year with growth across industries and markets.
  • Total Contract Value (TCV) in Q1 was $8.3 billion.
  • BFSI TCV was $2.7 billion.
  • Consumer business group TCV was $1.1 billion.
  • North America TCV stood at $4.6 billion.
  • BFSI returned to sequential growth but declined 0.9% year-on-year.
  • Consumer business group declined 0.3% year-on-year.
  • Manufacturing grew 9.4% with broad-based growth across subsectors.
  • Life sciences and healthcare grew 4%.
  • Energy resources and utilities grew 5.7%.
  • CMI (Communications, Media, and Information) declined 7.4%.
  • Technology and services returned to sequential growth but declined 3.9% year-on-year.
• AI and Gen AI
  • Over 270 AI and Gen AI engagements deployed or in progress.
  • AI and Gen AI pipeline doubled to $1.5 billion in the quarter.
  • The company is working on 270 AI/Gen AI projects.
  • TCS launched AI WisdomNext platform to aggregate multiple Gen AI services.
  • The platform offers modular components and industry-specific solution blueprints.
  • Cloud, cybersecurity, and enterprise solutions led growth.
  • Expanded partnerships in ER&D, utilities, and consumer process industry segments.
  • Growth in cloud workload, endpoint security, threat intelligence, and cyberattack responsive services.
  • Increased demand for IoT platforms and digital engineering capabilities across industries.
  • Productivity gains from Gen AI vary between 5% to 25%, depending on the type of engagement and project phase.
  • Software engineering projects typically see 5% to 20% productivity improvements.
  • Testing projects may yield higher productivity gains.
• Geographic Performance
  • Emerging markets showed superior and diversified growth.
  • India led with 61.8% growth.
  • Middle East and Africa grew 8.5%, Asia Pacific 7.6%, and Latin America 6.3%.
  • United Kingdom led major markets with 6% growth.
  • North America returned to sequential growth after five quarters.
  • Europe grew 0.9%, with IT services remaining flat.
• Growth Expectations
  • TCS expects fiscal year 2025 to be better than 2024.
  • Growth has been broad-based across verticals and geographies.
  • Lower TCV (Total Contract Value) is viewed as a timing issue rather than a concern.
  • The company’s pipeline remains strong.
  • Pricing Trends and Demand Visibility
  • Overall pricing is generally stable.
  • At a portfolio level, there are no material pricing changes to report.
  • Realizations have been improving sequentially.
  • TCS maintains that uncertainty in the market has not completely disappeared.
  • Clients are still re-evaluating or ramping down programs at short notice.
  • Demand outlook is heavily dependent on customers’ economic outlook.
• Margin Levers
  • Subcontractor costs have likely bottomed out and are expected to remain stable.
  • Short-term levers include pyramid optimization, productivity improvements, and utilization.
  • Utilization still provides some opportunity for improvement despite significant progress last year.
• Project Renewal Trends
  • Customers typically expect productivity improvements during project renewals.
  • Clients often add more scope during renewals to maintain topline neutrality for TCS.
  • Discussions about using Gen AI for productivity gains are occurring, but not yet widespread.
  • Extreme or high-level productivity gains through Gen AI not commonly demanded by clients during renewals.
• Retail Sector Outlook
  • Consumer confidence and inflation are key factors affecting the retail sector.
  • Interest rates and overall consumer outlook influence sector performance.
  • Improving macroeconomic conditions could act as tailwinds for the sector.
  • Sustained growth requires consistent improvement in consumer confidence and controlled inflation.
• Manufacturing and Healthcare Sector
  • Both sectors have performed well over the past three quarters.
  • The automotive industry is being reshaped by the advent of EVs.
  • Changes in spending priorities and investment focus are expected in these sectors.
  • Vertical integration trends among OEMs may impact tier-one suppliers.
  • The company remains cautiously optimistic about these sectors’ growth momentum.
• Deal Pipeline Trends
  • Deal types include cost optimization and discretionary spending projects.
  • Application modernization becoming more prominent in deal discussions.
  • Cost optimization programs tend to have longer tenures.
  • The average deal tenure is slowly decreasing at a global level.