TCS Q1 results: Revenue, profit exceed expectations, back in employee hiring zone

Tata Consultancy Services (TCS), India's largest IT services company, reported a rise in net profit for the first quarter of the financial year (Q1 FY25) that ended in June 2024, owing to the execution of large deals secured in previous quarters. 

TCS’ net profit rose 8.7% to ₹12,040 crore from ₹11,074 crore in the year-ago period but fell 3.2% compared to the March quarter, according to the IT services firm's financial results released on July 11.
Revenue for the quarter increased by 5.4% to ₹62,613 crore for the June quarter, as opposed to ₹59,381 crore in the corresponding period last fiscal year. TCS' operating margin for the quarter declined to 24.7% from 26% in the previous quarter, with a net margin of 19.2%.
 
The company reported double-digit growth in emerging markets, led by India (up 61.8% YoY). Almost all verticals returned to sequential growth, with YoY growth led by Manufacturing (up 9.4%), Energy, Resources and Utilities (up 5.7%), and Life Sciences & Healthcare (up 4%), the company said.
 
“I am pleased to report a strong start to the new fiscal year with all-round growth across industries and markets,” K. Krithivasan, Chief Executive Officer and Managing Director, said.
 
“We are continuing to expand our client relationships, create new capabilities in emerging technologies, and invest in innovation, including a new AI-focused TCS PacePort in France, IoT lab in the US, and expanding our delivery centres in Latin America, Canada, and Europe,” he added.
 
One of the key partnerships of the quarter was TCS extending its partnership with Xerox in June to create a new agile, cloud-first operating model. Furthermore, TCS collaborated with Indian Institute of Technology-Bombay to pioneer India's inaugural Quantum Diamond Microchip Imager. The establishment of the Bringing Life to Things Lab in Cincinnati, Ohio, also aims at facilitating the rapid prototyping, experimentation, and large-scale deployment of AI, GenAI, and Internet of Things (IoT) engineering solutions for clients.
 
Moreover, TCS inaugurated a Global Artificial Intelligence (AI) Center of Excellence in Paris, with a focus on brain-machine interface, fostering empathy in machines, and unlocking the creative potential of AI, it mentioned at the press conference.
 
TCS also saw a net addition of 5,452 employees in the April to June 2024 quarter. This takes the company's total workforce to 606,998 at the end of the first quarter of 2024-25. This is the first time in three consecutive quarters that the number of staffers at TCS has increased, the company said.

Meanwhile, the attrition rate at the tech services firm has further eased to 12.1% from 12.5% in the March 2024 quarter.
 
Milind Lakkad, Chief HR Officer, also announced the successful completion of the firm's annual increment process. “Our continued focus on employee engagement and development has led to industry-leading retention and strong business performance, with the net headcount addition being a matter of immense satisfaction,” he said.
 
TCS said in its statement, said that at the end of the first quarter, its employee base was very diverse with 35.5% women and people of 151 nationalities. “TCSers have clocked 11 million learning hours and acquired 1.2 million competencies,” the firm’s statement noted.
 
TCS board also declared an interim dividend of ₹10 per share. The interim dividend will be paid on August 5 to the equity shareholders of the company as of July 20, which is the record date fixed for the purpose, the company said.
 
TCS Chief Financial Officer Samir Seksaria said that despite the usual impact of the annual wage increments in the said quarter, the company delivered strong operating margin performance, validating its efforts towards operational excellence.

As of June 30, 2024, the company has applied for 8,194 patents, including 154 applied during the quarter, and has been granted 4,146 patents including 227 granted during the quarter.

 Biswajit Maity, Sr Principal Analyst at Gartner said, TCS's financial results show moderate growth, continuing its steady pace as a global IT service provider. Several factors contributed to this growth, including TCS’s vision, execution capability, consulting and transformation expertise, and commitment to customer centricity.

Gartner believes TCS will continue to be a strategic partner for clients due to its strategy aligning with market expectations and clients’ digital transformation objectives. In addition, TCS has demonstrated vision in AI/GenAI and cloud services by formulating its AI Cloud business unit. Gartner believes that with its investments in rapid innovation,

"TCS has an opportunity to shape the market rather than just react to it, as it understands the tectonic shift happening in the technology landscape due to AI/GenAI. TCS establishes itself as a trusted partner with clients, using its contextual knowledge of the client to expand its business through collaborative solution design and co-innovation. This approach results in satisfied customers awarding a high level of repeat business.," said Maity.

Shaji Nair, Research Analyst at Sharekhan by BNP Paribas said, TCS reported a solid quarter, with strong revenue growth beating our estimates of 1.5% q-o-q growth, while the margin declined 130 bps on account of wage hikes. Management commentary indicated order pipeline continues to stay healthy. Overall management maintains FY25 to be better than FY24. TCS Q1 numbers augur well to improve the sentiments for IT stocks and expect positive rubs off on the overall sector. 

In June, TCS was named the most valuable Indian brand, ranking 46th globally in the Kantar BrandZ Most Valuable Global Brands report. TCS’ brand value has seen a 7% increase over the past year, reaching $44.79 billion. Infosys, the second biggest Indian IT giant, which will also announce its Q1 results next week, too, made an appearance in the global rankings, securing the 74th position with a brand value of $24.68 billion.