TCS Reports Strong Q2 Results with Significant AI Advancements

India drives TCS growth buzz

Tata Consultancy Services (TCS) reported a 5% increase in net profit for the second quarter, driven by a large deal with BSNL. Despite cautious spending from clients in key markets, TCS saw signs of improvement in financial services in North America. CEO Krithivasan expressed optimism about the future, suggesting that the second quarter of FY25 could be better as macroeconomic uncertainty eases. India's largest software exporter Tata Consultancy Services (TCS) reported a 5% year-on-year increase in net profit to Rs 11,909 crore in the second quarter, driven by the ramp-up of its Rs 15,000 crore deal with state-owned telco Bharat Sanchar Nigam Ltd (BSNL) while clients in the key markets of America and Europe remained cautious with their technology spends. CEO K Krithivasan cited "some signs of improvement, most notably in financial services in North America," acknowledging that the "demand outlook continues to remain cautious," on an analyst call after earnings were announced. A planned press conference was cancelled due to Ratan Tata's death on Wednesday. "Stability in the macro brings initial signs of confidence with the easing of interest rate... consumer confidence and industry confidence will get better. This can potentially lead to improved investment," said Krithivasan, signalling that the second quarter of FY25 could be better and that the industry, which has been grappling with an unprecedented slowdown in demand, could emerge from the shadows of macroeconomic uncertainty. On a sequential basis, net profit fell 1%, mostly due to margin-dilutive work outside the Americas. On the revenue front, TCS surpassed ET estimates and posted consolidated revenue of Rs 64,259 crore, up 7.6% from a year ago and 2.6% sequentially. The BSNL deal lifted India sales by 95% from the year earlier as its largest market of North America declined 2.1% and the UK was up 4.6%. The company announced a second interim dividend of Rs 10 per equity share, to be paid on November 5. TCS shares ended marginally lower (0.6%) at Rs 4,228.40 on the BSE, while the Sensex closed up 0.2%. In the last three months, TCS shares have risen 8%. The company said that there are now over 600 AI and GenAI engagements deployed successfully in production or in various phases of development. TCS had said its AI and GenAI pipeline grew to $1.5 billion in the April-June period from $900 million in the March quarter. Without mentioning numbers, Krithivasan said the AI and GenAI pipeline was doubling every quarter. TCS said it added three large clients in the quarter. The number of clients that contributed over $100 million to revenue went up to 66 from xxx in xxx. Its order book was slightly higher at $8.6 billion of total contract value (TCV) compared with $8.3 billion in the June quarter. Margins shrank for the second quarter in a row, to 24.1% from 24.7%. Analysts had expected TCS to derive higher revenue contribution from BSNL, which has a pass-through component, that would limit the firm's margin expansion. "Key business themes seen across industries were cost optimisation, vendor consolidation, customer experience transformation, supply chain modernisation, risk and resiliency," Krithivasan said. "Globally, clients continue to prioritise efficiency through cost transformation programmes... Financial institutions in the US are looking at sustaining the growth momentum with the Fed first rate cut in four years." TCS said that growth was led by energy, resources and utilities (7.0%) as well as manufacturing (5.3%). Markets such as India, the Middle East and Africa (+7.9%), Asia Pacific (+7.5%), Latin America (+6.8%) were above the company's average. The stock market has been upbeat about IT after Accenture raised its FY25 guidance and sentiment improved following the US Federal Reserve's interest rate cut last month. ET has been reporting on industry expectations for an improved second half as hiring and demand show signs of a pick up after a deep lull. HCLTech will report earnings on October 14 and Infosys and Wipro on October 17. Headcount The IT giant added 5,726 employees in the second quarter, continuing net employee addition from the previous quarter. Total employee count at the end of September was 612,724, up from 606,998 in the June quarter. Attrition marginally increased by 20 basis points sequentially to 12.3% in the September quarter. A basis point is 0.01 percentage point. "We welcomed 11,000 associates in the first half of the year, and we remain on track for trainee onboarding as planned," said chief human resource officer Milind Lakkad. The IT bellwether has said it will hire 40,000 freshers in FY25.

TCS' Stable Q2 Demonstrates the Resilience of its Diversified Portfolio

Revenue at '64,259 crore | Growth of 6% YoY, +5.5% in CCGrowth led by Energy, Resources and Utilities (+7.0%), Manufacturing (+5.3%)All the Growth Markets march above company average: India (+95.2%), Middle East & Africa (+7.9%), Asia Pacific (+7.5%), Latin America (+6.8%)Operating Margin at 1%; Net Margin at 18.5%H1'FY25 Net Headcount Addition of more than 11,000 employees Tata Consultancy Services (BSE: 532540, NSE: TCS) reported its consolidated financial results according to Ind AS and IFRS, for the quarter ending September 30, 2024. Highlights of the Quarter Ended September 30, 2024 Revenue at '64,259 crore, +7.6% YoY, +5% YoY in Constant CurrencyOperating Margin at 1%; a decline of 0.2% YoYNet Income at '11,909 crore, +0% YoY | Net Margin at 18.5%Net Cash from Operations at '11,932 crore ie 2% of Net IncomeWorkforce strength: 612,724 | Net Headcount addition of 5,726Diverse and inclusive workplace: Women in the workforce:5% |150 NationalitiesLTM IT Services attrition rate at 3%Dividend per share: '00 | Record date 18/10/2024 | Payment date 05/11/2024 K Krithivasan, Chief Executive Officer and Managing Director, said: "We saw the cautious trends of the last few quarters continue to play out in this quarter as well. Amidst an uncertain geopolitical situation, our biggest vertical, BFSI showed signs of recovery. We also saw a strong performance in our Growth Markets. We stay focused on sharpening our value proposition to our clients, employees and other stakeholders". Samir Seksaria, Chief Financial Officer, said: "We made strategic investments this quarter in talent and infrastructure to ensure sustainable growth. Our disciplined execution resulted in superior cash conversion. Our longer-term cost structures remain unchanged, and we remain confident in our ability to continue delivering industry leading profitable growth". Milind Lakkad, Chief HR Officer, said: "We welcomed 11,000 associates in the first half of the year, and we remain on track for trainee onboarding as planned. We have also commenced the campus hiring process for FY26. Our strong talent base and increased learning intensity prepares us well for the complex technology transformations that customers entrust us with". Q2 FY25 Segment HighlightsGrowth by DomainIndustryComposition (%)Y-o-Y CC Growth (%)Q2 FY24Q2 FY25 BFSI32.630.8 0.1 Consumer Business15.915.1 0.1 Life Sciences & Healthcare10.910.4 0.1 Manufacturing8.68.6 5.3 Technology & Services8.68.0- 1.9 Communication & Media6.95.9- 10.3 Energy, Resources and Utilities5.65.7 7.0 Regional Markets & Others10.915.5 50.4 Total 100.0100.0 5.5Growth by MarketsGeographyComposition (%)Y-o-Y CC Growth (%)Q2 FY24Q2 FY25 Americas North America51.747.6- 2.1 Latin America2.01.8 6.8 Europe UK16.517.0 4.6 Continental Europe14.914.6 1.8 Asia Pacific 7.88.0 7.5 India 4.98.9 95.2 MEA 2.22.1 7.9 Total 100.0100.05.5 Services: Clients prioritized initiatives that accelerate customer acquisition, modernizing digital core including ERP platforms and improve enterprise observability, regulatory compliance and security posture. While discretionary spends were impacted, clients continued to invest and see improved outcomes using AI/GenAI. We are setting up interdisciplinary AI offices/CoEs to strategize, prioritize and implement AI at scale. Cyber Security, AI.Cloud and TCS Interactive led the growth this quarter. Win themes across key deals involved vendor consolidation, managed services, UX transformation, technology simplification, legacy modernization, enterprise network transformation, automation and GenAI initiatives. AI.Cloud: We are seeing continued momentum in AI/GenAI adoption, with the underlying technology gaining maturity at a very rapid pace. There are now over 600 AI/GenAI engagements deployed successfully in production or in various phases of development. Our customers are increasingly concentrating on integrating AI throughout their entire enterprise value chain, rather than working on isolated use cases. We are also enabling AI/GenAI capabilities across our suite of product and solutions. We are continuing to deepen our skillsets across our workforce through platforms like AI Experience Zone and TCS WisdomNextTM. On Cloud front, we continue to see good growth in Legacy Modernization, Data Platform Modernization and Technology Landscape Simplification. Cyber Security: Clients continue to up their spend on improving their security posture. Our offerings aimed at security guardrails for AI/GenAI adoption are seeing good traction. Governance, Risk & Compliance (GRC), Vulnerability Management, Identity and Access Management and Cloud Security were top areas of growth. We are also seeing traction for Security Operations transformation, Ransomware resiliency and Secure GenAI. TCS Interactive: The interactive services saw continued growth for this quarter. Marketers are focusing on customer acquisition, retention and product differentiation. This presents us opportunities in areas such as harnessing data to uncover valuable consumer segments, improving CX, creating personalized content, and ensuring adtech/martech are providing the best ROI for the business. Among many of our clients, the remit of CMOs is expanding to include digital transformation. Spending has improved slightly over the quarter, and marketers are looking for better ROI for their investment using technology, data and AI. IoT & Digital Engineering: IoT & Digital Engineering continues to see demand driven by Factory of the Future (Smart Manufacturing), OT Modernization, Intelligent Product Engineering, Connected Services & Connected Assets, and Sustainability. Key services that saw traction during the quarter included MES and Industry 4.0, IOT Platform Services and Digital Engineering. IoT driven transformation across connected devices and manufacturing is seeing higher adoption, demand is growing for Industrial AI (Digital Twins) combined with GenAI. Among industry groups, TSS and LSHCERU saw greater traction. Enterprise Solutions: Clients continue to invest in their ERP modernization. They are partnering with TCS in their business and CX transformation journey for solutions in supply chain optimization, claim modernization, sustainability and reimagining sales & service channels. GenAI saw good traction across industries. Our transformation approach, along with our contextual knowledge and industry pre-configured solutions including TCS Crystallus™ are enabling customers to accelerate their growth and transformation journeys. We continue to invest and strengthen our joint go-to market approach with our partners. Cognitive Business Operations: During this quarter, we saw multiple large wins across IT Infrastructure and business operations with robust TCV closure powered by Cognix™ led operating model transformation. Key trends witnessed were vendor consolidation, employee experience enhancement, workplace transformation, network reimagination and first-time outsourcing. Good traction in business process services, with Banking, Insurance, Cards and Supply Chain operations doing well. Key HighlightsPartnered with the Sydney Marathon, Australia's largest marathon for a five-year partnership, which will see TCS leverage its expertise to enhance the marathon's use of advanced technologies, sustainability, accessibility, and charitable impact while continuing to support running and wellbeing across Australia.Expanded partnership with Rolls-Royce, a British multinational specializing in civil aerospace, defense aerospace, services and power systems, to advance its sustainable initiatives and involves research into hydrogen fuel system technology. TCS will leverage its deep domain knowledge of the aircraft manufacturing industry and will support the engineering activities of Rolls-Royce such as system design, component design, supply chain support and program management.ASDA has recently partnered with TCS to enhance its IT operations by streamlining its IT infrastructure service landscape. This collaboration aims to improve ASDA's customer experience while strengthening its digital operations. The partnership is positioned to elevate overall customer satisfaction and support ASDA's ambition to become the 2nd largest retailer in the UK.Selected by Banco de Crédito del Perú (BCP) to transform their IT technology landscape. As part of the partnership, TCS will bring its digital offerings and industry-leading capabilities from AI.Cloud, Modernization and Banking business units to help BCP meet its strategic vision and deliver 100% digital customer experience. With the expanded partnership, TCS will continue to create value-driven outcomes for BCP, while supporting its strategic growth objective to continue be a transformative and innovative leader in the region.Selected by a leading global financial institution headquartered in Chicago, Illinois, for end-to-end application management and support for its Hedge Fund Administrator platform. As part of the engagement, TCS will take complete ownership of incident management, while ensuring proactive monitoring, implementing new alert mechanisms, and enabling seamless collaboration across the multi-vendor environment. The partnership with help the firm foster a culture of accountability and drive operational efficiency with optimal outcomes.Selected by Follett Higher Education, North America's leading college store operator, to strengthen its information technology infrastructure and cybersecurity services. TCS will create an enhanced IT infrastructure that better supports Follett's innovative academic and retail experiences for colleges and universities across the US and Canada, by deploying trademark platforms and solutions, such as TCS Cognix™ and Cloud Exponence.Announced a strategic collaboration with TÜV SÜD Middle East, a leading provider of testing, inspection, certification and training services, to accelerate the carbon management and sustainability journeys of its customers in the Middle East with tailored solutions for ESG, available on the TCS Zero Carbon Platform, which is a proprietary digital solution that helps organizations manage and monitor their carbon footprints and adopt sustainable business practices.Launched TCS Pace Studio in Stockholm, Sweden and Manila, Philippines, to offer its customers in the Nordics and APAC region, exclusive access to its innovation ecosystem. The state-of-the-art innovation hub and research centre will enable enterprises to explore the latest advancements in technology and deploy them at scale to accelerate their digital transformation journeys boosting digital innovation.Selected by Primark, a leading international fashion retailer across 17 countries in Europe and the US, to transform its technology operations to support the retailer's ambitious plans for global growth over the next five years.Entered a strategic partnership with Mansfield Building Society in the UK to digitally transform its business. TCS will deploy its state-of-the-art digital banking solution, TCS BaNCSTMfor Core Banking, along with its Digital Home Lending Solution, to enhance member and intermediary experiences and support Mansfield's ambitious growth plans.Selected by Qantas, for Managed services of Airline's Technology Domains including Airline Experience, Airline Operations, Commercial Airline Technology, Corporate & Business to Customer, TCS will drive an operating model transformation to transition their operations to a product-centric operating model towards maximizing the benefits from cloud transformation. Leveraging over 18 years of deep contextual knowledge about the client's business landscape, TCS will enhance operational resilience for Next Gen IT Operations and foster a faster rate of innovation. This comprehensive multi-year engagement will enable Qantas to achieve operational excellence. TCS will also leverage the emerging AI technologies to improve automation levels, helping the client achieve significant cost savings and efficiency.George Yang-led Golden Arches Development Corporation (GADC), the master franchise holder of McDonald's in the Philippines selected TCS to standardize and digitize the IT operations for its 760+ restaurants. TCS will implement an advanced upgrade to the cloud (SAP S/4HANA on RISE), by harnessing its deep industry expertise and contextual knowledge in SAP-led business systems transformation, TCS will upgrade the IT infrastructure of GADC, resulting in better insights, improved decision-making, and optimized operational performance.Launched a new delivery centre in Warsaw, Poland, expanding its operations in the country. With the new delivery centre, TCS expects to double its workforce to 1200-plus in a year to support its further growth in the region and showcase its capabilities across industries and technologies.TCS partnered with one of the largest ground handling companies based in Europe, to help them improve their cybersecurity maturity and reduce risk exposure. TCS enabled comprehensive visibility of the enterprise cyber-risk landscape, which enabled the customer to measure the efficacy of their security operations, establish better control and governance on key security programs and track their returns on cybersecurity investments.Openreach, UK's largest telecom infrastructure company has selected TCS as its strategic partner for the business operation transformation of their national roll-out of next-gen fibre networks. This managed services deal solidifies our role as a trusted partner in Openreach's E2E FTTP network transformation journey, delivering superior services for their flagship broadband business (Ethernet) customers, while optimizing cost of network builds, minimizing truck rolls and shortening of production cycles. TCS will harness its unparalleled contextual expertise and domain knowledge of GenAI and cloud-led innovations to deliver efficient operations, elevate customer experience, drive superior business outcomes and help Openreach connect customers' faster. About Tata Consultancy Services Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many of the world's largest businesses in their transformation journeys for over 56 years. Its consulting-led, cognitive powered, portfolio of business, technology and engineering services and solutions is delivered through its unique Location Independent Agile™ delivery model, recognized as a benchmark of excellence in software development. A part of the Tata group, India's largest multinational business group, TCS has over 601,000 of the world's best-trained consultants in 55 countries. The company generated consolidated revenues of US $29 billion in the fiscal year ended March 31, 2024, and is listed on the BSE and the NSE in India. TCS' proactive stance on climate change and award-winning work with communities across the world have earned it a place in leading sustainability indices such as the MSCI Global Sustainability Index and the FTSE4Good Emerging Index. For more information, visit www.tcs.com

TCS FY25 Q2 Results: Over 600 AI Engagements Deployed Successfully

The company reported a revenue of $7.67 billion and increased its headcount by 5,726. Tata Consultancy Services (TCS) announced on Thursday that over 600 AI and generative AI engagements have been deployed successfully in production or in various phases of development so far. The company said it is seeing continued momentum with Gen AI adoption and the technology maturing at a rapid pace. "Our customers are increasingly concentrating on integrating AI throughout their entire enterprise value chain rather than working on isolated use cases. We are also enabling AI/GenAI capabilities across our suite of products and solutions," TCS said in its FY25 second-quarter earnings release. TCS reported 270 AI projects across its global operations in the previous quarter and stated that its AI pipeline doubled to $1.5 billion in the last quarter. However, the company refrained from releasing financial projections related to these initiatives this quarter. Nonetheless, it revealed that clients are increasing their investments to enhance security measures. Hence, the company's offerings are designed to provide security guardrails for AI and generative AI adoption, and they are gaining strong traction. TCS noted that while discretionary spending was affected, clients continued to invest in AI and generative AI, yielding better outcomes. The company is also establishing interdisciplinary AI offices and Centres of Excellence to strategise, prioritise, and implement AI at scale. The IT giant reported revenue of $7.67 billion, reflecting a 6.4% year-over-year increase, while net income reached $1.42 billion, marking a 3.8% year-over-year growth. The company also increased its headcount by 5,726 during that period, reaching 612,724. "We welcomed 11,000 associates in the first half of the year, and we remain on track for trainee onboarding as planned. We have also commenced the campus hiring process for FY26," Milind Lakkad, chief human resource officer at TCS, said. It also launched a new delivery centre in Warsaw, Poland, aiming to double its workforce to over 1,200 within a year to support regional growth and demonstrate its capabilities across industries. Commenting on the quarterly results, K Krithivasan, chief executive officer and managing director, said, "We saw the cautious trends of the last few quarters continue to play out in this quarter as well. Amidst an uncertain geopolitical situation, our biggest vertical, Banking, Financial Services and Insurance (BFSI), showed signs of recovery. We also saw a strong performance in our growth markets."