Informist, Tuesday, Jul. 8, 2025

By Anjana Therese Antony

MUMBAI – India's information technology behemoth Tata Consultancy Services Ltd. is likely to post muted earnings growth sequentially and on year for the June quarter due to no major improvement in the macroeconomic environment for the sector and persisting worries about the risk of US tariffs, according to broking firms. The company is also likely to continue to be an underperformer compared to most of its mid-cap peers due to client ramp downs.

Analysts expect revenue growth in constant currency terms to decline sequentially, particularly due to the moderation in revenue from Bharat Sanchar Nigam Ltd. even as international business is expected to grow. However, analysts are divided about the margin - some expect the metric to grow sequentially, others estimate it will fall, and a few others anticipate it will be flat.

For the quarter ended June, the Mumbai-based IT giant's consolidated net profit is expected to decline 1% sequentially to INR 120.97 billion, according to the average of estimates from nine brokerages. This would mean a mere 0.5% increase from a year ago. Of these nine brokerages, HDFC Securities has the highest bottom line estimate of INR 123.54 billion while ICICI Securities has the lowest of INR 116.89 billion.

TCS' consolidated revenue is likely to be unchanged sequentially at INR 644.99 billion, as per the average of estimates. This would indicate a 3% on-year rise. The highest top line estimate of INR 649.93 billion was from Kotak Institutional Equities and the lowest of INR 629.02 billion was from ICICI Securities.

In constant currency terms, ICICI Securities estimates the highest fall in revenue of 3.4% on quarter, primarily due to the ramp-down in the BSNL deal won in 2023, while Kotak expects the lowest decline of 0.4%. TCS is about to complete the INR-150-billion fourth-generation rollout project for the telecom major.

However, the ramp-down in the BSNL deal is also considered good for TCS as it will moderate costs related to this project. BSNL's contract was a large-scale project which incurs third-party expenses for TCS and has been has been hurting the company's margins. Even though BSNL's contract had contributed significantly to TCS' revenue, analysts had said it has not necessarily translated into growth in its margins.

Some brokerages expect the likely impact of the completion of the BSNL deal on the top line in constant currency terms to be partly offset by the growth in international business. ICICI Securities estimates the company's international business will grow 1.1% sequentially in constant currency terms, while JM Financial Services expects the growth "to improve sequentially, a positive given the uncertain backdrop."

The company is scheduled to release its quarterly results Thursday. The management's post-earnings press conference is scheduled at 1730 IST and the earnings conference call will be at 1900 IST. Investors will watch for the company's comments on trends in clients' budgets, as well as the company's business outlook, view on US tariffs, hiring plans, demand, trends on any progress in clients' decision making, and revenue conversion from latest deal with BSNL.

In May, TCS had won an add-on advance purchase order worth INR 29.03 billion from BSNL for planning, engineering, supply, installation, testing, commissioning, and annual maintenance of the fourth-generation mobile network at 18,685 sites. During the March quarter post-earnings call with analysts, the management had said it is looking at opportunities in India as well as globally to replace revenue from BSNL.

MARGIN

Broking firms have different views about the company's earnings before interest and tax margin for the June quarter. On a sequential basis, Nirmal Bang and ICICI Securities expect the EBIT margin to decline sequentially due to lower employee utilisation, higher visa costs, and investments in new talent, but Nuvama Institutional Equities expect the metric to improve 20 basis points.

In the March quarter, TCS had reported a consolidated operating margin of 24.2%, down 30 bps from a quarter ago. Nuvama has the highest margin estimate of 24.4%, while Nirmal Bang has the lowest of 23.8%.

Emkay Global Financial Services, JM Financial Services, and Kotak expect the metric to be flat sequentially. This is because the impact of the headwinds is likely to be offset by operating efficiencies and lower costs from the BSNL deal.

DEAL WINS

The IT giant's total contract value is expected to remain in the usual range of $7 billion-$9 billion, some brokerages said. "Wait and watch mood of clients was the main reason for average TCV (total contract value) performance," Nirmal Bang said. HDFC Securities estimates the total contract value for the quarter to be $9 billion.

The deal ramp-up timelines for some of the long-duration projects have been pushed ahead, ICICI Securities said. "New deal win closure is also slow. Retail, auto, and telecom are most impacted verticals," it said. Investors' focus will also be on the struggle for growth in the international business despite strong deal wins, Kotak said.

Even though the management had said it does not expect any major project cancellations due to the uncertainties from US tariffs, it did see delays in decision making and no major improvement in discretionary spending. The "maximum impact" of the current global tariff war is expected to be reflected in hospitality and automobile sectors, it had said.

Investors will closely track management comments on generative artificial intelligence-related projects. DBS, formerly known as Development Bank of Singapore, had Monday said AI investments remain a major tailwind for the US macroeconomic environment and earnings growth outlook. It said fund managers have an 'overweight' view on sectors such as communications services, healthcare, and financials.

The bank's positive comments about the IT sector comes at a time when global players have been feeling the heat of higher interest rates in the US, fears of an economic slowdown, and likely tighter budget from clients on caution about tariffs. Indian IT companies, including TCS, have major exposure to the US, with many players earning more than half of their revenue from the world's largest economy. In the March quarter, North America contributed 48.2% to the company's top line, down from 50% in the year-ago period.

Tuesday, shares of TCS closed at INR 3,406.20 on the National Stock Exchange, down 0.2%. The stock has risen just 5%, or nearly INR 160, since the March quarter earnings announced on Apr. 10. TCS is among the two preferred IT stocks of ICICI Securities as its valuation is at comfortable levels, supported by healthy fundamentals.

Following are the Apr-Jun earnings estimates for Tata Consultancy Services based on reports from nine brokerage firms in descending order of the estimate of net profit:

End

US$1 = INR 85.69

Edited by Deepshikha Bhardwaj

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