TCS Q3 Results: AI is creating more jobs, says CEO K Krithivasan

AI is creating more jobs. There are going to be job shifts, nature of jobs are changing

Gen AI might lead to a change in the profile of some jobs, but net-net it will be positive.

Krithivasan: Most large deals have a component of Gen AI in it. But we don't seeing any pricing pressure due it yet.

We expect it to bring more business going forward

K Krithivasan, CEO, TCS: Share of Gen AI revenue in overall revenue was about 10-12% last quarter, and that is improving slowly. We are seeing more percentage of Gen AI/AI programs going into production.

Krithivasan: Once new government comes in the US, there will be more certainty. There will be more confidence on discretionary spending

CFO Seksaria: We stay committed to our 26-28% margin guidance. As things improve, we should be able to reach 26%, but can't comment on a quarterly timeline

CHRO Lakkad: We have a pretty good model of global workforce. Dependency on H-1B is very limited. It's not a major concern for us.

Agentic AI is becoming more common through improved capabilities of LLMs. More complex tasks are being done through this...Work is becoming more complex and rewarding

Samir Seksaria, CFO: We hired about 5,000 each in Q1 and Q2 but we had efficiency coming in Q3 and this effect will be there in Q4 as well

CEO K Krithivasan: We are happy with the regional growth. This quarter growth was contributed by non-BSNL deals. There's a seasonality in India market which has played out this quarter

CEO K Krithivasan: Softness continued in Q3, but looking at the order book and conversation with customers...discretionary spending is likely to increase. We saw the growth in North America and BFSI as positive -- there are signs of discretionary spending revival

CHRO Milind Lakkad: There is no direct co-relation between growth and headcount

Campus hiring on track for 40,000 people in FY25

Attrition of 13% is within our comfort range. We expect this to go down in upcoming quarters

We are seeing successful production employment in AI and Gen AI projects, gives us confidence for the future

TCV has gone up after two quarters driven by deal wins in North America and BFSI

We are seeing continued momentum in AI adoption.

Clients are showing interest in Agentic AI

TCS BaNCS and product platforms continued seeing growth...customer metrics remained strong and resilient.

Order book closure stands at $10.2 bn, BFSI - $2.2 bn --- gives us confidence and comfort on outlook for future

In Q3 macro factors of Q2 continued coupled with seasonally slow quarter, says K Krithivasan, CEO.

Given the seasonality most of the verticals and markets saw a sequential negative growth on QoQ basis, he added.

India’s largest IT services company Tata Consultancy Services (TCS) reported its highest third quarter order book in at least the past five fiscal years with total contract value (TCV) at $10.2 billion in the period ended December 31.

This comes in a seasonally weak quarter for the IT industry due to holiday season in core markets like North America.

The TCV for the quarter was 25.93 percent higher from the $8.1 billion in the year-ago period and was up 18.6 percent from the previous quarter, the company said on January 9.

India’s largest IT services company Tata Consultancy Services (TCS) reported a net decline of 5,370 employees in its workforce during the fiscal third quarter, marking a reversal after two consecutive quarters of headcount growth.

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USD Rev: $7.54 bn , CC Rev growth: 4.5%; Operating Margins: 24.5%; Net addition: -5,370; Attrition Rate: 13%, TCV: $10.2 bn

Milind Lakkad, Chief HR Officer, said: “We promoted over 25,000 associates this quarter which brought the total promotions this financial year to more than 110,000. We continue to invest in employee upskilling and overall well-being. Our campus hiring for the year is going according to plan and preparations are afoot to onboard a higher number of campus hires next year”.

IT major Tata Consultancy Services Ltd on January 9 reported consolidated net profit of Rs 12,380 crore as compared to Rs 11,058 crore in the year-ago period.

India Market grows 70.2% YoY

Slowdown in North America and Continental Europe YoY

A 15-year end-to-end digital solution deal with Ireland’s Department of Social Protection.

A multi-year AI-ready, cloud-native data landscape deal with Air France-KLM.

A transformation deal with Bank of Bhutan.

A five-year deal extension with Denmark’s Telenor.

A three-year hardware and software deal for the Indian government’s SPARSH (System for Pension Administration – Raksha)

The third quarter is a seasonally weak quarter for IT companies due to higher furloughs on account of Christmas and New Year holidays.

Furloughs in the IT sector refer to temporary leaves of absence, typically unpaid, that companies implement for their employees and are common, largely towards the end of the calendar year.

Despite weakness in revenue growth, analysts expect EBIT margins to improve for TCS in Q3. With the company having undertaken wage hikes back in Q1, the absence of additional costs on that front, coupled with currency tailwinds due to the rupee's depreciation as well as improved operational efficiencies are expected to aid margin expansion.

Analysts across the board expected muted revenue growth for TCS due to seasonal weakness from higher furloughs in Q3.

In addition, analysts at Kotak Institutional Equities expects weak revenues from developed markets and stronger growth in emerging markets.

The quarterly results of TCS will also set the tone for the entire information technology segment. Stocks from the sector may also react to the company's earnings performance and management commentary as investors attempt to gauge the future outlook for the industry.

Market participants will watch out for the management's outlook for revenue and demand growth in the coming quarters. Focus will also be on customer behavior post-Fed rate cut, demand trends in Europe and the UK, deal wins, and hiring plans.

The profit growth is expected to be driven by an improvement in EBIT margins on the back of a rupee depreciation and better operational efficiencies. Meanwhile, it is also worth noting that Q3 is a seasonally weak quarter for the IT industry.

Rival Accenture recently reported impressive Gen AI bookings. In the first quarter of FY25, Accenture secured $1.2 billion in new Gen AI bookings. The company recorded $1 billion in Gen AI bookings in Q4FY24, bringing the total for FY24 to $3 billion.

While TCS did not disclose specific deal sizes or revenue growth details for its Gen AI projects in the previous quarter, its growing pipeline and strategic investments indicate its strong positioning in the AI domain.

Generative AI has become a key area of focus for tech services companies, and among the top players, TCS and Accenture have been leading the charge in securing Gen AI deals. TCS, in particular, has been actively pursuing Gen AI projects, managing over 600 AI and Gen AI projects, either in production or development stages.

The company has also been setting up interdisciplinary AI offices and a Centre of Excellence (CoE) to strategize and implement AI at scale. These moves underscore TCS's commitment to positioning itself as a leader in the rapidly growing AI space.

• India’s passport project.
• The Indian Railways’ IRCTC website.
• India Post’s digital project.

• A 15-year end-to-end digital solution deal with Ireland’s Department of Social Protection.
• A multi-year AI-ready, cloud-native data landscape deal with Air France-KLM.
• A transformation deal with Bank of Bhutan.
• A five-year deal extension with Denmark’s Telenor.
• A three-year hardware and software deal for the Indian government’s SPARSH (System for Pension Administration - Raksha)

TCS’s earnings results will likely have a significant impact on the entire IT sector. The company’s performance is often seen as a bellwether for the sector, and sectoral stocks may react to both the earnings figures and the management’s commentary on the overall outlook for the industry. Any positive or negative surprises in TCS’s results could lead to sharp movements in IT sector stocks, especially given the narrow range of earnings estimates for the company.

Given TCS’s expected underperformance relative to the rest of the IT industry (excluding BSNL revenues), market participants will be keen to understand the specific reasons behind this. Clear explanations regarding this underperformance will be critical in shaping the outlook for the company’s future earnings.

• Customer behavior post the Fed rate cuts (interest rate reductions by the US Federal Reserve).
• Demand trends in Europe and the UK, where economic conditions are currently uncertain.
• Insights on deal wins and hiring plans for the next few months.

• Depreciation of the Indian Rupee: A weaker rupee helps TCS as a large portion of its revenues comes from international markets, especially the US and Europe.
• Improved Operational Efficiencies: Cost control measures and better management of resources are expected to help the company achieve higher margins.
• Absence of Additional Wage Hikes: After the wage hikes implemented earlier in the year (Q1), there will be no additional costs in Q3, contributing to margin improvement.

Analysts expect muted deal wins for TCS in Q3, projecting $9-10 billion in new deals. The lack of mega-deal activity across the IT sector, including TCS, has led to expectations of lower deal value in the quarter.

TCS’s revenue from the BSNL deal is expected to moderate in Q3 after a strong contribution in Q2. The BSNL deal was a significant factor in boosting revenue in the previous quarter, but the deal’s revenue impact is expected to reduce in Q3. However, analysts point out that the absence of BSNL-related costs, which had hurt margins in Q2, will help expand EBIT margins in Q3.

Q3 is typically a seasonally weak quarter for IT companies, including TCS, due to higher furloughs during the Christmas and New Year holidays. These furloughs result in reduced employee availability, which can negatively impact revenue growth. Analysts are factoring in this seasonal slowdown when estimating TCS’s quarterly performance.

• Improved EBIT margins due to a depreciating rupee (which benefits TCS’s overseas earnings) and better operational efficiencies.
• The absence of BSNL-related costs, which impacted margins in the prior quarter, is also seen as a positive factor.

Despite the slight drop in revenue, TCS is expected to see a 3 percent sequential increase in net profit, rising to Rs 12,308 crore, up from Rs 11,909 crore in the previous quarter.

Analysts, in a Moneycontrol poll of seven brokerages, have forecasted TCS’s revenue to show a slight decline for the quarter. It is expected to post a revenue of Rs 64,218 crore, a marginal decrease of less than one percent from the Rs 64,259 crore reported in the previous quarter. This anticipated decline is attributed to seasonal weakness in the IT sector, particularly from higher furloughs (temporary unpaid leaves) during the holiday season.

Welcome to Moneycontrol's live blog as we bring you the latest updates on Tata Consultancy Services' (TCS) Q3 earnings report, set to be announced today. With TCS kicking off the October-December earnings season, all eyes are on its performance amidst expectations of muted revenue growth due to seasonal factors like higher furloughs. However, analysts are hopeful for profit growth driven by a weaker rupee and improved operational efficiencies. Stay with us for live coverage and detailed insights.