What can we expect from TCS Q2 Results FY25?

Tata Consultancy Services Ltd (TCS) has garnered considerable attention as it releases its second-quarter earnings for FY25 today, with investors and analysts focusing closely on the IT giant’s performance amid an evolving demand landscape. While TCS has established a stable growth track record, key shifts in sector-specific demand, investment in talent, and a conservative outlook in specific verticals have become focal points for investors.

The share price of IT bellwether Tata Consultancy Services (TCS) remained unchanged on October 10 ahead of its quarterly results announcement today. TCS share price was up 0.24%, or around, at ₹4,263.25 per share on the NSE at 11:40 AM. After falling over the past two days, the stock has now increased.

TCS Quarterly Performance Snapshot

For Q2 of FY25, Kotak Institutional Equities has projected a robust 9.9% year-over-year rise in TCS's net profit, reaching ₹12,461 crore, alongside a 7.3% growth in revenue, expected to amount to ₹64,040 crore. 
According to brokerage polls, revenue is anticipated to rise by around 2.1% sequentially to ₹63,938 crore. This would translate to a 9.5% year-over-year growth, reflecting steady expansion, even as the company encounters specific vertical challenges. 

The projected performance of TCS appears modestly positive but marks a slight decline in operational margins attributed to an ongoing ramp-up from a recent BSNL deal and an emphasis on investing in talent to meet new client requirements.

Historically, TCS has maintained impressive quarterly figures. In the previous year’s September quarter, the company recorded sales of ₹59,692 crore and net profits of ₹11,380 crore, marking a consistent growth trajectory over the last year with quarterly profits reaching ₹12,105 crore in June 2024. 

As a leading player in the Indian IT sector, TCS has leveraged strong demand across its portfolio while continuing to invest in skill enhancement and talent acquisition to stay competitive.

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Investors and Analyst Expectations

Investors are eagerly awaiting updates on TCS’s strategic direction, particularly in the System Development and Support (SDS) segment. With slower-than-expected ramp-up in the automotive sector, especially with clients outside of Jaguar Land Rover (JLR), and conservative spending by media and communications clients, investors are looking for TCS to share a revised demand outlook across its core segments. 

Analysts from Kotak and Motilal Oswal forecast that growth in the transportation segment will offset the downturns in other areas, thanks to strong ties with JLR. However, investors will want more clarity on healthcare and medical devices, where revenue has been under pressure, and the company’s potential strategy for boosting activity here. 

According to Motilal Oswal, TCS’s strategy includes a comprehensive hiring program with plans to bring in 40,000 freshers by the end of FY25, supplemented by a revived focus on lateral hiring after a year-long pause. The company has also introduced a five-day office work policy, signalling a potential shift toward improved productivity and efficiency.

Brokerage Insights on Sectoral Demand and Profit Margins

Analysts at Kotak Institutional Equities and Motilal Oswal see opportunities and challenges in TCS’s segmented approach, where certain sectors like media and communications continue to face demand softness while transportation and technology-driven solutions may see moderate growth. The anticipated revenue growth of 1.2% quarter-over-quarter in constant currency (CC) reflects TCS's efforts to stabilize amid these challenges. However, profitability metrics have come under scrutiny; Motilal Oswal has pointed out that a modest dip in margins is likely due to costs associated with the BSNL project and additional investments in workforce development.

Despite these headwinds, TCS's steady momentum has garnered it a favourable market standing. The company's shares rose by 17.71% over the last year, though the broader market benchmark Sensex outperformed with a 23.61% gain. Nevertheless, TCS stock has seen a 12.10% appreciation in 2024, suggesting resilience even amid macroeconomic challenges and evolving client demand.

Outlook and Key Areas of Focus

Looking ahead, investors and analysts will continue to monitor TCS’s strategic adaptations in its core and emerging verticals. The transportation sector is expected to remain a significant revenue driver, with demand likely supported by clients such as JLR, despite macro pressures on the automotive industry. The media and communications vertical may see a cautious approach on spending in the short term, while the healthcare and medical devices segment presents a mixed outlook, with TCS likely needing to innovate or diversify its offerings to revitalize revenue growth.

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To Summarize

TCS’s Q2 FY25 earnings and subsequent outlook reflect a blend of stability and cautious optimism. While facing challenges in specific verticals, the company remains committed to investing in growth avenues and maintaining its operational scale through strategic hires and a robust client portfolio. Investors will be keen to see how TCS navigates sectoral dynamics to sustain growth in the coming quarters.