TCS Q1 Preview: Seasonality, strong bookings, digital traction to boost revenue, wages to hit margin

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26 Aug, 2025 12:21

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Tata Consultancy Services (TCS) is expected to report about 4 percent sequential growth in revenue in constant currency terms, driven by seasonality, strong bookings, and digital traction.

TCS, which kicks off the June quarter earnings season on July 8, is also expected to report margin contraction because of higher wage costs, while other income is expected to support profitability. The market will also look out for an update on the management’s expectation of double-digit growth in FY22.

The stock touched a record high of Rs 3,399 in June 2021. It rallied 56 percent in the past year and gained 14 percent so far in 2021.

Due to low base last year, analysts are not looking at YoY comparison. On a QoQ basis there is no impact of Covid on the company's topline.

"No impact of Covid coupled with the seasonally strong quarter, digital traction and ramp up deals will drive Q1FY22 revenues. TCS is expected to register 4.0 percent QoQ growth in constant currency led by anticipated improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies and ramp up of deals. Further, cross currency tailwind would lead to revenue growth of 4.2 percent QoQ in dollar terms," said ICICI Direct which sees 8.1 percent sequential growth in profit and 5.4 percent in rupee revenue for June quarter.

Rupee revenue growth is expected to be higher than dollar revenue due to rupee depreciation.

Kotak Institutional Equities expects strong constant currency revenue growth rate of 3.7 percent, powered by seasonal uptick in spending by clients, conversion of strong bookings of the earlier quarter into revenues, and market share gains. "We expect around 4.5 percent growth in international markets and 0.5 percent hit on growth from decline in India business," said the brokerage.

At the operating level, earnings before interest and tax (EBIT) margin is expected to contract around 100-150 bps due to wage hike on sequential basis, but there could be sharp increase on year-on-year basis.

On profitability, "we expect EBIT margin to decline 100 bps QoQ due to wage revisions and potential drag from India business. We believe TCS' timely and consistent recruitment, robust supply-side engine and people practices will minimize margin impact from wage revisions," said Kotak.

The brokerage expects robust deal total contract value (TCV) powered by large deals, and expects robust revenue outlook of double-digit growth with indications of even mid-teens growth.

Key things to watch out for would be revenue growth & margin outlook, durability of growth and magnitude of opportunity from the aggressive cloud shift by clients, pipeline of mega and large deals, and performance of verticals that have been under pressure..

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