TCS revenue growth disappoints, margin ‘surprised positively’: Jefferies

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26 Aug, 2025 12:21

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Tata Consultancy Services’ (TCS’) second quarter revenue growth year-on-year (YoY), flat in constant currency (cc) terms, disappointed while margins up 110 bps sequentially “surprised positively”, said brokerage Jefferies.

TCS reported a 9 percent year-on-year (YoY) growth in consolidated net profit for the quarter ended September to Rs 11,342 crore. Consolidated revenue grew nearly 8 percent YoY to Rs 59,692 crore.

Also read: TCS Q2 Results Highlights: Strong deal momentum delivered us very large order book says TCS CEO and MD K Krithivasan

The brokerage has a hold call on the stock with a target price of Rs 3,450.

The company saw revenue decline in five of the seven verticals, the brokerage report, post the earnings announcement stated. While Communication (+2.3% QoQcc) and Regional Markets (+3.8% QoQcc) drove growth, tech (-1.6% QoQcc), Lifesciences (-0.9% QoQcc) and Manufacturing vertical (-0.7% QoQcc) impacted growth. Revenue decline in North America (-0.7 percent QoQcc) for a third straight quarter also impacted growth, according to them.

A strong decline in the headcount—falling by 6,400 QoQ—which was the highest quarterly decline in a decade “raises doubts on near-term demand and 2H recovery”.

Analysts noted the drag on growth from revenue leakage, calling attention to the management commentary.

“Management highlighted that while the company is able to sign large deals and the new projects are ramping up on time, revenue leakage from existing projects due to deferrals or ramp downs is impacting revenue growth. Furthermore, Management highlighted that the demand sentiment has not changed and clients remain cautious. However, management highlighted that clients' willingness for longer term deals and their appetite to experiment with GenAI and other new technologies provides confidence on longer term growth,” they stated.

The company’s margin expansion was driven by 35bps savings in employee costs and 50bps improvement in subcontracting costs. “Management highlighted that focus on productivity improvements has driven margin improvement despite flattish revenues. A strong margin expansion was a positive surprise in 2Q results,” wrote the analysts.