Bengaluru: The earnings season for the technology industry began on a grim note, with India’s IT bellwether seeing quarterly revenue slip sequentially for the second successive quarter on account of a key India deal nearing completion. This resulted in slowest full-year revenue growth for Tata Consultancy Services (TCS) in four years despite beating analyst expectations.
TCS delivered FY25 revenues of $30.2 billion, beating a Bloomberg poll of 47 analysts, which predicted $29.6 billion revenue for the fiscal. However, the top line saw a year-on-year (y-o-y) fall of 3.78%, the worst show since March 2021, when it had reported 0.7% y-o-y growth.
As for the latest quarter, the Mumbai-headquartered company’s Q4 revenues declined 0.98% sequentially and grew 1.39% on a y-o-y basis to $7.47 billion.
The results come in the backdrop of the company being buffeted by the winds of uncertainty over trade tariffs and due to its deal with state-run telecom operator, Bharat Sanchar Nigam Ltd, nearing its end. TCS had signed a 4G network deployment deal with BSNL worth $1.83 billion in May 2023 as part of which it set up data centres for the telecom operator across India.
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A squeeze in discretionary spends from tight-fisted clients in its biggest geography—North America—did not help either, although TCS’s management highlighted that the company’s international business, which is more than 90% of its overall business, grew 0.6% sequentially.
Worryingly, for investors, TCS’s management underlined uncertainty on account of macroeconomic challenges although it said that its order book value of $39.4 billion gives it confidence that FY26 will be better than FY25.
“While till February, we were quite positive and optimistic about the quarter, we started seeing some amount of uncertainty creeping in March and resulting in some project delays, some decision-making delays,” said K. Krithivasan, chief executive of TCS, during the company’s post-earnings media briefing on Thursday.
“We have not seen any major project cancellation. There are some ramp downs here and there, but there are some delays in decision making, and that’s what we observe at this time,” said Krithivasan, adding that the company’s belief is that the uncertainty should settle over the next few months.
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At least one analyst attributed the company’s weak performance to its India business.
“TCS reported a weak revenue performance for Q4FY25 with a -0.8% q-o-q (quarter-on-quarter) constant-currency growth and recording a sequential decline in Q4 for the first time since Q4FY20,” said Manik Taneja, research analyst with Axis Capital, a Mumbai-based brokerage. “However, this was driven by the sharp sequential decline in the India business even as core developed markets saw a return to growth.”
This implies that slowdown in the BSNL deal, which makes up the bulk of TCS’s India business, resulted in a 1% drop in sequential revenue. The BSNL deal will end in the April-June 2025 period.
Still, TCS’s numbers for the full year were shored up by a surge in business in India, traditionally a small market that comprised 8.6% of its FY25 revenue. Homegrown businesses contributed 88% of the company’s incremental revenue of $1.1 billion in FY25 (revenue of FY24 was $29.1 billion).
The company also appointed former Tata Sons chief digital officer, Aarthi Subramanian, as its chief operating officer for five years. She is expected to take over her new role from 1 May 2025.
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While the revenue was dragged by BSNL, there were mixed signals on the net profit front. Full-year net profit increased marginally by 2% to $5.7 billion, in line with analyst expectations, whereas net profit for the January-March quarter fell 2.74% to $1.42 billion. This was because of the sequential revenue decline despite lower costs in the quarter.
Another spark of concern for the company was its profitability, which decreased 30 basis points to 24.3% at the end of FY25 which the company attributed to increments and infrastructure expansion. One basis point is a hundredth of a percentage point.
This goes against TCS’s trend. Historically, TCS’s profitability peaks towards the end of the fiscal year because it is the only major IT outsourcer to give salary hikes at the start of a fiscal year, limiting the impact of the hikes to the first six months of the fiscal (April to September).
Uncertainty on salary hikes
This year, there is uncertainty on whether TCS will give wage hikes in the first quarter, as it has in the past. The management remained non-committal.
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“Considering the uncertain business environment, we will decide during the year when to make that happen (give hikes),” said Milind Lakkad, TCS’s chief human resources officer, as part of the company’s post-earnings press conference.
In terms of people, the company’s net addition was 6,433 employees through the year to end the fiscal with 607,979 employees. Headcount is a key determinant of the demand environment in the IT services industry. More hiring or increased headcount indicates higher demand for tech services whereas a cut in headcount signals lower demand and lower business for software service providers.
Meanwhile, the global business and economic environment is getting murkier. US President Donald Trump imposed tariffs on imports from its trade partners on 2 April and a week later, paused the taxes for 90 days. This see-saw has caused the markets to factor in uncertainty.
Such uncertainty is bad news for IT services companies because when Fortune 500 companies hold back their spending, the revenue of Indian IT outsourcers takes a hit.
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A double whammy comes in the form of Gen AI, which threatens to eat into the work of IT outsourcers as the new technology can automate human tasks, reducing the dependence on humans for certain types of work. Much like its homegrown peers, TCS does not call out revenue from Gen AI.
