Technology

TCS Profit Meets Estimates as IT Project Demand Picks Up

(Bloomberg)

(Bloomberg) -- Tata Consultancy Services Ltd. reported profit that met analysts’ estimates, signaling corporations are slowly resuming spending on projects to take advantage of technologies such as artificial intelligence.

Net income rose 9% to 120.4 billion rupees ($1.4 billion) in the first quarter through June. Analysts, on average, had projected a profit of 119.59 billion rupees. Sales climbed 5.4% to 626.1 billion rupees.

TCS leads India’s nearly $250 billion tech industry, which is betting on technologies such as AI and machine learning to get companies to spend more on their computer systems. Slowing global economies and conflicts including Russia’s persistent war on Ukraine have made corporations cautious with their investment decisions.

“We still believe it’s too early to call whether the growth momentum is sustainable, because the market conditions continue to the remain same as they were last quarter,” TCS Chief Executive Officer K. Krithivasan told a news conference Thursday in Mumbai, where the outsourcer is headquartered. 

The company is optimistic though that the financial year through March 2025 will be better than the previous year, he said.

Shares of TCS closed up 0.4% in Mumbai before the earnings were announced, and have gained 3.4% this year on expectations IT spending will soon pick up.

TCS and rivals such as Infosys Ltd. emerged as outsourcing powerhouses a few decades ago by offering cheap back-office solutions to the world’s biggest corporations, giving rise to the term “Bangalored.” They’ve since moved up the value chain to become critical partners to companies in business transformation — and now seek further margin expansion by expanding into technologies such as AI, cloud and machine learning.

What Bloomberg Intelligence Says

Tata Consultancy’s fiscal 1Q25 results suggest pressure in discretionary IT spending, especially among North American clients, which appears likely to lead to a lowering of 2Q consensus. Though the pace of sales declines in the banking and technology verticals improved compared with 4Q, management comments suggest an uncertain spending climate, which is in line with our thesis. 

— Anurag Rana & Andrew Girard, analysts

Click here for research

Among TCS’s partners is OpenAI-backer Microsoft Corp., and the outsourcer is betting on the relationship to develop AI-based software services for clients, Krithivasan told Bloomberg News previously.

TCS expects AI help generate “significant revenue” within a few quarters, said Krithivasan.

“My view is the interest will keep increasing, we will identify newer use cases, we will understand how this technology has to be deployed over a period of time and then you will start seeing it become mainstream,” he said.

 

(Updates to add CEO comments in fourth and last paragraphs)

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