TCS Q3 2024-2025 Call Highlights: Navigating AI, Employee Optimization & TCV Soars!

Tata Consultancy Services Ltd., a leading provider of IT services, consulting and business solutions, and outsourcing, in its Q3 earnings call discussed about strong deal wins, while showing early signs of revival in discretionary spending and shorter deal cycles, particularly in BFSI and international markets. Management expressed optimism for 2025, citing improved deal wins and increasing AI adoption in areas like drug discovery and mainframe modernization. TCS also addressed that while deal tenures remain stable, deal cycles are shortening, and the company is monitoring the potential impact of generative AI on pricing models.

The largest IT Services company in India reported strong financial performance for Q3 with a net profit up 12% year-over-year and revenue up 5.6% year-over-year, maintaining operating margins at 24.5%. The company secured significant deals with a Total Contract Value of $10.2 billion, including a major 15 year contract with Ireland’s Department of Social Protection, though facing slowdowns in North America and Continental Europe while experiencing robust growth in the Indian market of 70.2% year-over-year. Company’s headcount saw a reduction of 5,370 employees bringing the total to 607,354 and promoting 25,000 associates in Q3. Employee costs stood at INR35,956 crore, up 3.5% year-over-year and the IT services attrition rate remained stable at 13%.

Continue Reading: Discover the Vital Insights from Tata Consultancy Services Ltd.’s Earnings Call!

Financial/Operational Metrics:

• Revenue: INR63,973 crores, up 5.6% YoY.
• Net Income: INR12,444 crores, up 12% YoY.
• Operating Margin: 24.5%, down 50 bps YoY.
• EPS: INR34.21, up 12% YoY.
• LTM Attrition Rate: 13%.

Outlook:

• Investment Priorities: Gen AI and cloud services, AI-driven solutions for BFSI, retail, and life sciences.
• IT Budgets: Expected to remain stable with a positive bias in FY ’25.
• Discretionary Spending: Medium-term growth anticipated for manufacturing and healthcare.

 

 Analyst Crossfire:

• Deal Wins and Growth Conversion, Headcount Decline (Yogesh Agarwal – HSBC Securities)? Strong deal wins in FY ’24 faced delays due to project reprioritization, but improved discretionary spending and robust TCV in FY ’25 boost confidence for CY ’25 and FY ’26. Seasonal optimization led to reduced headcount in Q3; not reflective of demand. Hiring will align with growth later in the year (Samir Seksaria – CFO, K. Krithivasan – CEO).

 

• Mega Deals and Pipeline, Margins and Aspirations (Ravi Menon – Macquarie, Sandeep Shah – Equirus Securities)? No mega deals closed this quarter, but large deals increased. The BFSI segment in North America showed positive growth, driven by contributions from major accounts. Sequential improvement in operating margin by 40 bps was significant. The target remains to exit Q4 at 26%, with BSNL-related cost reductions providing a potential lever (K. Krithivasan – CEO, Samir Seksaria – CFO).

 

• Revival Signs in Verticals & Impact of AI Projects (Ankur Rudra – J.P. Morgan)? Improved deal cycles and discretionary spending in BFSI and CBG highlight optimism. AI-driven projects and cloud adoption dominate the demand mix. Generative AI projects, like drug discovery, primarily generate new demand rather than replacing existing work. AI contributes net-positive to overall demand (K. Krithivasan – CEO).

 

• BSNL Revenue Tapering and Project Extensions (Nitin Padmanabhan – Investec, Vibhor Singhal – Nuvama Equities)? BSNL revenue will gradually taper across Q4 FY ’25 and Q1 FY ’26. Efforts to leverage BSNL capabilities globally aim to offset revenue loss. Current TCV excludes BSNL contributions. Participation in upcoming 5G RFPs is expected, building on the successful 4G project execution (K. Krithivasan – CEO, Samir Seksaria – CFO).

 

• Furlough Recovery & Discretionary Spending Outlook (Abhishek Kumar – JM Financial, Sumeet Jain – CLSA)? Some furloughs may spill into January, similar to last year, with overall budgets showing positive bias despite ongoing reprioritization. Discretionary spend revival depends on macroeconomic stability; manufacturing should recover post-Q4, while life sciences await U.S. policy clarity (K. Krithivasan – CEO).

 

• Retail and High-Tech Recovery & Vertical Recovery Expectations (Abhishek Pathak – Motilal Oswal, Sandeep Shah – Equirus Securities)? Retail shows growth in essentials and fashion segments, while high-tech spending on semiconductors and hyperscalers is expected to rise. Most verticals, including aerospace, are expected to recover, but life sciences and healthcare remain uncertain (K. Krithivasan – CEO).

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