TCS CY24Q4 Earnings Call Key Takeaways

Demand Environment

• Customer priorities continue to remain centered around cost optimization and business transformation
• Expect client IT budgets to remain similar in CY25 with a positive bias
• With the reduction in the interest rates, easing of inflation, and reduced uncertainty with the new US administration taking over, expect the discretionary demand to strengthen
• Verticals:
  • Seeing early signs of revival in discretionary spend in BFSI and Retail
  • Manufacturing, Life Sciences, and Healthcare should start seeing growth in the medium term as near-term challenges have bottomed out this quarter
• GenAI, AI, and cloud services continue to see significant growth
  • Customers are gearing up to leverage AI by focusing on application modernization and cloud
  • Helping clients build LLMs, benchmark their performance, and enhance their efforts in quantization
• Clients are investing in
  • Agentic AI adoption
    • Represents the next stage of maturity in the exponentially evolving space of AI
    • Adds reasoning capabilities to large language models
    • Moving beyond initial wave of chatbots and RAG deployments of GenAI
    • Allows to design, train, and deploy agents that solve high-value business problems
  • Building a robust data foundation
  • Technology modernization
  • SAP S/4 HANA transformations
  • Cloud engagements

Revenue

• CY25Q4 Revenue of $7.539bn, +3.6% YoY in SD, +4.5% YoY in CC
• Vertical (in order of growth):
  • Energy Resources and Utilities +3.4%
  • Consumer +1.1%
    • Primarily driven by the improvement seen in retail in all major markets
    • Travel, transportation, and hospitality performed well in UK, EMEA, and APAC, but considerably slowed in the US due to a market specific issue and strained customer profitability
    • Retail growth strong in the fashion apparel sub-segments
  • BFSI +0.9%
    • Leading adopter of AI, GenAI, and other cutting edge technologies
  • Manufacturing +0.4%
    • Continue to see softness in CY24Q3 due to a combination of macro and industry specific issues in auto and aerospace, which have faced challenges from supply chain unrest and the labor market
    • Feel it will bottom out in CY25Q1 and growth will come back
    • Continue to capture demand on the back of significant investments in factor of the future, smart manufacturing, software vehicles, and GenAI
  • Technology & Services -0.4%
    • Client IT budgets continued to remain flat
  • Life Sciences Healthcare -4.3%
    • Client specific challenges called out last quarter are largely stabilized
    • MedTech industry is undergoing rapid transformation driven by the shift to intelligent devices and predictive AI, GenAI in genomics, cell therapy, and personalization
    • Customers are also investing significantly in scaling their digital manufacturing capabilities and building a resilient supply chain
    • Buyers waiting for more policy clarity in the US until discretionary spending returns
  • Communications and Media -10.6%
    • Continues to encounter challenges with demand, primarily led by technology-driven cost optimization
    • There are encouraging signs of a rebound in IT spending as telcos advance their efforts to expand into adjacent businesses while enhancing efficiency in their core operations
• Geographies (in order of growth):
  • India +70.2%
  • Middle East +15%
  • Latin America +7%
  • Asia Pacific +5.8%
  • UK +4.1%
  • Europe +1.5%
  • North America -2.3%

Bookings

• CY25Q4 Order Book TCV of $10.2bn
  • Highlight of the quarter was exceptionally strong and broad-based TCV, especially strong in:
    • North America $5.9bn
    • BFSI $3.2bn
    • Consumer Business $1.3bn
• Saw the deferral of some projects based upon the ROI expectation which saw reprioritization
• Seeing a decrease in the deal cycle by a few weeks on deals greater then $20mn
• Verticals:
  • Good deals wins in BFSI, CPG
• Geographies:
  • Europe has one of the best deals wins

Margin

• CY25Q4 Operating Margin of 24.5%, +40 bps QoQ, -50 bps YoY
  • Headwinds
    • Furloughs
    • Q3 seasonality
  • Tailwinds
• Margin aspiration remains 26% to 28%

Employees

• CY25Q1 Closing headcount of 607,354, -5,370 QoQ
  • QoQ reduction was due to seasonality
  • Don’t see a correlation between headcount and growth in the short-term
• LTM attrition of 13.0% in IT Services
• Awarded 25,000 promotions, total year 110,000