TCS Q2 Results: Profit Rises 5%, Margins Slip Slightly; Key Highlights from the Latest Earnings

India’s leading IT services firm, Tata Consultancy Services (TCS), announced its Q2 FY25 financial results on October 10, 2024, showcasing a steady 5% rise in net profit, despite a slight dip in operating margins. As the first major Indian IT company to declare earnings this season, TCS’s results shed light on cautious industry trends, geopolitical uncertainties, and its strategic investments.

Let’s dive into the key details of TCS’s Q2 performance and its broader business outlook.

TCS Q2 FY25: Financial Performance

TCS posted a net profit of ₹11,909 crore for the July-September quarter, marking a 5% year-on-year (YoY) increase from ₹11,342 crore in the same quarter last year. Revenue from operations rose 7.7% to ₹64,259 crore, reflecting the company’s solid footing in challenging market conditions. In constant currency (CC) terms, TCS’s revenue grew 5.5%.

However, the company experienced a slight contraction in its operating margin, which stood at 24.1%, down 0.2% from the previous year. TCS also reported a net margin of 18.5%, highlighting a disciplined cost structure but also acknowledging the impact of geopolitical and economic uncertainties.

Key Sector Performances: Mixed Results Across Domains

While some business verticals showed promising recovery, others struggled. The Banking, Financial Services, and Insurance (BFSI) sector, TCS’s largest vertical, saw a modest recovery with a 0.1% YoY growth in constant currency terms. After witnessing a downturn in previous quarters, this sector’s stabilization is a positive sign for the company.

Other key sectors, including Consumer Business and Life Sciences & Healthcare, each reported a 0.1% YoY growth. On the other hand, Energy, Resources & Utilities, and Manufacturing showed healthier performance, with growth rates of 7% and 5.3% YoY, respectively, in constant currency terms.

However, not all verticals performed as well. The Communication & Media domain saw a significant 10.3% YoY decline, while the Technology & Services segment also fell by 1.9%. The uneven performance across sectors reflects the cautious spending trends in various industries, impacted by both global macroeconomic challenges and evolving technological demands.

Growth Markets Shine

TCS’s geographical footprint continues to expand, with strong growth in emerging markets. The Indian market emerged as the standout performer, posting a staggering 95.2% YoY growth in constant currency terms. The Middle East & Africa and Asia Pacific regions also showed robust gains of 7.9% and 7.5% YoY, respectively.

In contrast, the North American market, which contributes significantly to TCS’s overall revenue, saw a slower growth rate of 2.1% YoY. The UK and Latin American markets also experienced moderate growth, at 4.6% and 6.8% YoY, respectively.

Talent and Workforce Expansion

As of the end of Q2 FY25, TCS’s total workforce stood at 6,12,724 employees, with a net addition of 5,726 staff members during the quarter. For the first half of the fiscal year, the company added over 11,000 new employees.

The company has kept attrition levels in check, with IT services’ attrition standing at 12.3% over the past twelve months. According to Milind Lakkad, Chief Human Resources Officer at TCS, the firm remains on track for trainee onboarding and campus hiring for FY26. TCS’s investment in talent underscores its commitment to delivering complex technological transformations for its clients, especially as demand for skilled professionals in areas like artificial intelligence (AI) and cybersecurity continues to grow.

Key Deal Wins: Strengthening Strategic Partnerships

During Q2 FY25, TCS secured several notable deals across different sectors, further strengthening its market presence. Some of the major wins include:

• Rolls-Royce: TCS expanded its partnership with Rolls-Royce, focusing on sustainable initiatives, particularly hydrogen fuel system technology.
• ASDA: The UK-based supermarket chain partnered with TCS to streamline its IT infrastructure.
• Follett Higher Education: TCS was selected to enhance Follett’s IT infrastructure and cybersecurity services, reinforcing its foothold in the education sector.
• Mansfield Building Society (UK): TCS entered a strategic partnership with this building society to digitally transform its business.
• Golden Arches Development Corporation (GADC): TCS will help GADC, the master franchise holder of McDonald’s in the Philippines, standardize and digitize its IT operations across more than 760 restaurants.
• Openreach: In the UK, TCS was chosen as a strategic partner to assist Openreach in rolling out its next-generation fibre networks.

These wins highlight TCS’s growing reputation as a trusted partner for large-scale business transformations.

Dividend Announcement

TCS announced an interim dividend of ₹10 per share, with the record date set for October 18, 2024, and the dividend payment scheduled for November 5, 2024. Earlier in July, TCS had also paid a ₹10 per share dividend, with a final dividend of ₹28 per share in May for the financial year 2024-25.

Tata Sons, which holds a 71.74% stake in TCS, stands to earn approximately ₹2,600 crore from the latest dividend payout, reinforcing the company’s strong cash flow and ability to return value to its shareholders.

Conclusion:

TCS’s Q2 FY25 results showcase a resilient performance amidst uncertain global market conditions. With moderate growth in key verticals and regions, coupled with continued investments in talent and infrastructure, TCS remains well-positioned for long-term success. While cautious industry trends persist, the company’s robust deal pipeline and focus on AI and cybersecurity are expected to drive future growth.