TCS Q2 Results Preview: Net profit likely to rise about 4%, revenue may grow over 2% QoQ on BSNL deal

Tata Consultancy Services (TCS), the largest information technology (IT) company in India, is set to announce its earnings for the second quarter of FY25 on October 10. The IT bellwether is expected to post decent earnings growth led by ramp-up of key deals, especially the BSNL one.

TCS revenue in the June-September quarter of FY25 is expected to grow 2.2% to ₹64,011 crore from ₹62,613 crore in the previous quarter, according to a poll of six brokerages. Revenue in USD terms is likely to increase 2% to $7,648 million from $7,505, quarter-on-quarter (QoQ).

Revenue growth in Constant Currency (CC) is projected to be around 1.2% QoQ led by pick up in US BFSI project ramp ups and the ongoing BSNL deal. Analysts estimate around $75 million incremental contribution from BSNL deal.

“The growth is expected to be led by deal scale-up, including the BSNL deal and incremental pick-up in North America BFSI. The deal pipeline should remain healthy. There is some positive movement in BFSI, but weakness in the UK needs to be monitored,” brokerage firm Motilal Oswal said.

Revenues are likely to remain stable in the rest of the business due to challenges in Europe offset by some improvement in US BFSI.

The IT heavyweight’s net profit in Q2FY25 is expected to rise 3.5% to ₹12,461 crore from ₹12,040 crore, QoQ.

Margins

At the operational level, TCS Q2 earnings before interest and taxes (EBIT) is expected to rise 3.1% to ₹15,916 crore from ₹15,442 crore, QoQ.

EBIT margins are likely to be watched out for as softer growth in developed markets and lower margin profile of BSNL deal will be key headwinds. Thus, while MOFSL estimates EBIT margin to decline by 20 bps, ICICI Securities expects margin to expand by 49 bps QoQ in absence of wage hikes. The depreciation in Indian rupee is also expected to act as a tailwind for margins.

“Headwinds for the quarter are lower utilization rates and shift of revenue mix toward lower margin BSNL contract. Note that Q1 margins included 35 bps one-time impact from electoral trust contribution. We expect $10 billion of deal wins which is a decline from the September 2023 quarter. Note that previous year TCV number had mega-deals with high renewal component,” Kotak Institutional Equities said in a note.

Going forward, focus would be on Europe outlook, which remains challenging despite multiple mega deal wins over the past year.

Investor would also focus on outlook in financial services vertical and any loss of share to insourcing at large clients, state of spending in UK & Europe market and signs of improvement in demand, pipeline of deals, state of discretionary spending and what would it take to revive the same, impact of GCC ramp-up on growth of companies and levers to defend and increase margins, according to Kotak Equities. 

On Wednesday, TCS shares ended 0.12% higher at ₹4,256.25 apiece on the BSE.

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