Last quarter, TCS reported a slowdown in its BFSI vertical which accounts for nearly 35-40 percent of the company’s revenue.
Hiring Plans and FurloughsLast quarter, TCS’ headcount dropped by 5,680 on a net basis.
Generative AI PlansTCS had over 250 generative AI projects in the pipeline.
This is in addition to another $450 million worth of generative AI deals it previously won.
How FY25 will play out for TCS in terms of the next phase of generative AI plans will be interesting to watch out.
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This has been quite a year for India's largest IT services company Tata Consultancy Services (TCS). From getting a new CEO, undergoing a structural change, adding new verticals like cloud and AI, to becoming AI-first in identity, all this happened in a tough business environment that saw delayed deal closures, persisting macroeconomic challenges and inflationary pressures.
As markets await results for the fourth quarter on April 12, five key themes will be closely watched in the management commentary by TCS.
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Revenue Growth
According to Moneycontrol’s estimates, revenue for the quarter is expected to be around Rs 60,559 crores, growing 2.36 percent YoY and remained flat sequentially.
Net profit is estimated to come in at Rs 11,739 crores, a 3.05 percent jump YoY and 6.16 percent increase sequentially.
Among Tier-I IT companies, TCS will be the best positioned drive revenue growth. “TCS, aided by BSNL deal ramp, will likely lead the growth,” said a Jefferies report.
The company’s EBIT margins or operating margins are expected to remain flat in Q4FY24 at 25 percent, as per Moneycontrol’s estimates. Analysts at Sharekhan expect some improvement for TCS on the margin front this quarter driven by better utilisation and lower sub-contracting expenses, offsetting lower margins from BSNL deal.
Demand Outlook
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While TCS has not reported any mega deals this quarter, it did bag a bunch of multi-year, multi-million dollar deals from Aviva, Ramboll and the Central Bank in the US, to name a few. Overall, analysts are expecting a good order book in Q4FY24.
TCS moved away from its previous guided range of $9-10 billion in Q3FY24, but managed to clock in $8.1 billion in order book without a mega deal.
Last quarter, TCS reported a slowdown in its BFSI vertical which accounts for nearly 35-40 percent of the company’s revenue. Geographically, TCS’ core market North America too had declined in growth. Whether these areas have started showing any recovery and comments on revival of discretionary spending will be closely tracked.
“Despite the elongated deal cycle due to the macro-overhang, the deal TCV over 9MFY24 is robust at $29.5 billion. We believe the ramp-ups of deals with JLR, BSNL, Nest and Aviva should contribute strongly to the company’s revenue growth recovery in FY25,” the Sharekhan report said.
Hiring Plans and Furloughs
Last quarter, TCS’ headcount dropped by 5,680 on a net basis. This was the second consecutive quarter of headcount decline for the company while it maintained that it is on track to hire 40,000 freshers as planned for FY24.
Analysts said that the reversal of furloughs in Q4FY24 will aide TCS’ business.
TCS had reported steady decline in attrition rate to 13.3 percent last quarter on LTM (last twelve-month) basis. CHRO Milind Lakkad had said while this is a comfortable range, he does expect it to go down further.
TCS’ plans for hiring in FY25 will be looked out for. Though in FY24 there were delays in campus hiring, the company has already announced fresher hiring tests for FY25.
Generative AI Plans
TCS had over 250 generative AI projects in the pipeline. Though customers are now getting comfortable with the technology and expect some proof of concepts (PoCs) to move to production, the project sizes have been smaller, Krithivasan had said last quarter during the earnings call.
Meanwhile, rival Accenture has been sharing bigger than ever revenue and numbers on generative AI deals. As of the December-February quarter, Accenture added $600 million in generative AI deals. This is in addition to another $450 million worth of generative AI deals it previously won.
How FY25 will play out for TCS in terms of the next phase of generative AI plans will be interesting to watch out.
Commentary on FY25 Growth
Though it’s a stable company, TCS is also navigating the ongoing AI boom as it looks to fortify its AI strategy, help customers with finding generative AI use cases, train employees etc. This fiscal year, the company aims to expand business in some of its in-demand and newer segments including semiconductors, EVs and AI as well.
Earlier in an interview Moneycontrol, CEO K Krithivasan had said that he expects FY25 to be better than FY24. He had also said that budgets are no longer sacrosanct as customers are ready to re-calibrate depending on opportunities.
“We expect IT firms to be cautious on FY25 guidance given that most missed their initial guidance range in FY24 and recent guidance ranges from overseas peers suggest the demand environment remains subdued,” analysts at Jefferies said in the report.
Also read: Digital twins, chip design, AI solutions: Inside TCS' big semiconductor bet
