TCS Q3FY25 results preview: Muted top-line growth to better operational efficiency; all you need to know

The overall sentiment around earnings expectations is muted as India’s GDP growth slowed to 5.4%, and the revised advanced estimates suggest a bleak outlook for GDP growth in FY25. The December quarter for the IT sector is a seasonally weak quarter, mainly due to furloughs and a slower pace of deal wins. However, industry tailwinds like cost optimisation and currency depreciation are expected to aid better margins and profitability.

Muted top-line growth

TCS is expected to report flat-to-positive revenue growth for Q3FY25 as per consensus estimates on investing.com, revenue is expected to be in the range of ₹644,000, rising marginally, largely driven by muted deal wins and slower implementation on the BSNL order deal. Revenue in the September quarter rose 2.6% sequentially to ₹64,259 crore. The BFSI segment has shown steady recovery and is expected to lead the revenue growth for the quarter.

Margin improvement on expected lines

Despite muted revenue growth, operating margins are expected to improve, mainly due to better cost optimisation, rupee depreciation, and little to no wage hikes during the quarter. The total headcount for Q2FY25 stood at 612,724, with no major addition in Q3, Employee costs are expected to be largely unchanged.

Moderate bottom-line growth

Amid the absence of any major fireworks regarding new deal wins and lower revenue accretion from top clients, net profit growth is expected to be in the moderate range of 3-5%, as per investing.com's consensus estimates. Cross-currency tailwinds and improvement in operational efficiencies are likely to aid profitability growth.

What to look for in the guidance and outlook

Investors and market participants will likely pay attention to full-year revenue guidance for FY25 and early estimates for FY26. They will also keenly watch the visibility of total contract value and new deal wins. Commentary on the revival of discretionary spending in the US and new deal wins in the BFSI and Insurance sector will remain in focus. TCS had previously announced $1.5 billion of project pipeline for Gen AI and any upward revision in the number will be closely watched.

Glance of Q2FY25

The total revenue for Q2FY25 stood at ₹64,259 crore, up 7.6% and 6.5% in USD terms. The operating margin dipped 60 bps to 24.1%. Growth was led by the energy, resources and utilities (+7.0%) and Manufacturing (+5.3%) segments. Additionally, the board announced an interim dividend of ₹10 per share.