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TCS Q2 FY 24-25 Results: Net Profit Falls to ₹11,909 Crore, Miss the Market Expectations
Tata Consultancy Services (TCS) has reported its financial results for the second quarter of FY 24-25, revealing a mixed performance. The IT giant posted a net profit of ₹11,909 crore, which is a 1.1% decline from the previous quarter and fell short of the ₹12,420 crore forecast by analysts. The company's revenue, however, saw an upward trend, rising to ₹64,259 crore, driven by solid performances in the Energy, Resources, and Utilities sectors.
TCS Q2 Result Highlights
- Revenue: ₹64,259 crore, up 7.6% YoY
- Net Profit: ₹11,909 crore, down 1.1% QoQ
- Operating Margin: 24.1%, slightly narrowing from 24.7% in Q1 FY 24-25
- Net Margin: 18.5%
- Order Book: $8.6 billion, a YoY decline of 23.2%, but a sequential increase of 3.61%
- Employee Headcount: 612,724, with a net addition of 5,726 employees in Q2 FY 24-25
- Interim Dividend: TCS declared its second interim dividend of ₹10 per share, with a record date set for October 18, 2024.
Sector and Geographical Performance
TCS experienced varied growth across different sectors and geographies during the quarter:
- India: Saw a significant growth of 95.2% YoY, driven by the ongoing execution of the ₹15,000 crore BSNL deal, which involves setting up 4G and 5G infrastructure across the country.
- North America: Continued to face challenges, registering a 2.1% YoY decline in constant currency (CC) terms, reflecting sluggish demand.
- UK: Grew by 4.6% YoY CC, while Continental Europe posted modest growth of 1.8% YoY CC.
- Energy, Resources, and Utilities: This sector recorded a 7% growth YoY, helping drive overall revenue.
- Manufacturing: Grew by 5.3%, while BFSI (Banking, Financial Services, and Insurance), TCS's largest vertical, showed marginal improvement with a 0.1% YoY growth.
Margins Under Pressure
TCS's operating margin narrowed to 24.1% in Q2 FY 24-25, compared to 24.7% in Q1 FY 24-25, reflecting increased costs and macroeconomic pressures. The company's cost of revenue increased, with notable expenses in equipment and software, which saw a sharp rise from ₹462 crore to ₹3,230 crore YoY.
Deal Wins and Order Book
TCS’s total contract value (TCV) for the quarter stood at $8.6 billion, with North America contributing $4.2 billion. The BFSI sector continued to be a key contributor with $2.9 billion in new contracts, while the Consumer Business added $1.2 billion. Despite the YoY decline in the order book, the pipeline of AI and Gen AI projects, with over 600 initiatives in execution, promises future growth.
Employee Addition and Attrition
TCS added 5,726 employees in Q2 FY 24-25, bringing its total workforce to 612,724. The company also reported a low LTM (Last Twelve Months) attrition rate of 12.3% in its IT services division, reflecting stability in its workforce amid a competitive talent market.
CEO's Remarks
K Krithivasan, CEO and MD of TCS, acknowledged the continuing cautious trends in the global market, particularly in North America. He pointed out that the company’s performance in India and other growth markets helped offset some of the challenges faced in other regions. "The ramp-up of key deals, such as the BSNL contract, has been a major contributor to our domestic growth, and we expect strong contributions from AI and cloud initiatives in the coming quarters," he added.
Dividend Announcement
TCS declared a second interim dividend of ₹10 per share for FY 24-25, reinforcing the company's commitment to delivering value to its shareholders. The record date to determine the eligibility of shareholders is October 18, 2024.
Conclusion: Mixed Results with a Positive Outlook
While TCS missed market expectations in terms of net profit, its robust revenue growth and new deal wins offer a positive outlook for future quarters. The company's strong performance in India, particularly through the BSNL deal, and its expanding portfolio of AI projects indicate potential long-term growth. However, the challenges in North America and shrinking margins remain key areas to monitor.
FAQs on TCS Q2 FY 24-25 Results
1. Why did TCS’s net profit decline in Q2 FY 24-25?
TCS’s net profit fell by 1.1% QoQ, primarily due to narrowing margins and increased operational costs, particularly in equipment and software licenses.
2. What sectors contributed to TCS’s revenue growth in Q2 FY 24-25?
Growth was driven by the Energy, Resources, and Utilities sector, along with a strong performance in Manufacturing and BFSI.
3. How is the BSNL deal impacting TCS's growth?
The ₹15,000 crore BSNL deal, which involves setting up 4G and 5G infrastructure in India, significantly boosted TCS’s domestic revenue growth by 95.2% YoY.
4. What is TCS’s current employee strength and attrition rate?
TCS’s employee base stands at 612,724, with a low attrition rate of 12.3% in IT services, reflecting workforce stability.
5. What is the interim dividend declared by TCS?
TCS declared a second interim dividend of ₹10 per share, with the record date set for October 18, 2024, continuing its commitment to shareholder returns.
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Financial Result