TCS Reports 3% Decline in Q1 Revenue, Marking First Drop in Over Four Years

Tata Consultancy Services (TCS) has reported its first year-on-year revenue decline in constant currency since the September quarter of FY21, attributing the downturn to challenging macroeconomic conditions and a cautious client sentiment. For the June quarter, TCS’s revenue fell by 3.1% year-on-year in constant currency and 3.3% sequentially, as geopolitical uncertainties continued to impact demand. CEO K. Krithivasan expressed optimism for future growth, although he acknowledged that the timing of a recovery remains uncertain.

Revenue Decline and Contributing Factors

TCS’s revenue performance for the June quarter has raised concerns, marking a significant decline in constant currency. The company experienced a 3.1% drop compared to the same period last year and a 3.3% decrease from the previous quarter. Krithivasan noted that the decline was influenced by several factors, including the winding down of the BSNL deal, which accounted for a substantial portion of the revenue loss. He highlighted that international revenue saw a slight decline of 0.5%, while domestic revenue in India plummeted by 21.7%. The overall performance reflects a broader trend of delayed decision-making among clients, who are increasingly cautious about their investments amid uncertain economic conditions.

Operating Margins and Market Performance

Despite the revenue decline, TCS’s operating margin showed a slight improvement, rising to 24.5% from 24.7% a year earlier. CFO Samir Seksaria attributed this increase to a reduction in third-party expenses. However, the company faced challenges in its key markets. North America reported a 2.2% year-on-year decline in constant currency, while the UK and Continental Europe also experienced downturns of 1.3% and 3.1%, respectively. The significant drop in the Indian market, largely due to the BSNL deal’s ramp-down, has raised concerns about TCS’s ability to maintain its growth trajectory in the region.

Client Sentiment and Project Delays

Krithivasan elaborated on the factors contributing to the decline in international revenue, emphasizing that many clients are pausing or delaying approved projects. This hesitation stems from a rising threshold for expected return on investment (ROI), leading to uncertainty about the viability of new initiatives. He noted that decisions which were anticipated to be made within the quarter have been postponed, as clients seek clarity on the potential ROI of their projects. This cautious approach has resulted in a slowdown in transformation projects, particularly in consumer industries that are more sensitive to tariffs and economic fluctuations.

Future Outlook and Expectations

Looking ahead, TCS remains cautiously optimistic about its future growth prospects. Krithivasan indicated that while it is too early to predict when growth will resume, he expects greater clarity in the macroeconomic environment by late July or early August. The ongoing trade discussions and the recent approval of a new bill in the United States could potentially improve market conditions. TCS is hopeful that international revenue will surpass FY25 levels by FY26, reflecting a long-term commitment to recovery and growth despite the current challenges.

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