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Indian business outperformed, North America edged down

In Q1FY25, TCS’s consolidated revenue grew 5.4% YoY to Rs. 62,613cr (up 3.9% in dollar terms and 4.4% in cc terms). Resilient growth across major geographies aided the revenue growth. Revenue from North America grew sequentially in cc terms after five quarters (down 1.1% YoY in cc terms). Indian business delivered strong growth momentum with 61.8% YoY growth. Resilient growth in IT services spend in the UK lifted revenue from the country by 6% YoY. The trend is expected to remain going forward. BFSI revenue declined 0.9% YoY in cc terms owing to escalations in client transformations priorities. Life sciences grew 4% YoY in cc terms driven by steady demand from the sector. In Q1FY25, EBITDA margin widened 130bps YoY to 26.6% driven by better productivity, improved utilisation and a decline in subcontractor expenses. However, these were offset by higher employee cost (+3.6% YoY) owing to annual wage hikes and increased cost of equipment and software licences. As a result, Reported PAT clocked 8.9% YoY growth to Rs. 12,105cr.

Stable order book

In Q1FY25, TCS clocked muted order book TCV of $8.3bn, including $4.6bn from North America, $2.7bn from BFSI and $1.1bn from the consumer business. The management indicated that order book was impacted by deferment of some orders and expressed confidence that they will be booked in Q2FY25. Further, client metrics delivered strong growth in Q1FY25 with addition of at least one new client sequentially in all categories.

Key concall highlights

* Headcount reached 606,998 with net addition of 5,452 employees in Q1FY25. TCS would continue to recalibrate its hiring strategies as per demand outlook.

* In Q1FY25, LTM attrition rate stood at 12.1%, down 40bps QoQ, staying in TCS’s comfort range of 11-13% as indicated by the management.

* The management expects FY25 to be better than FY24 overall, with growth across geographies and verticals.

Valuation

Muted performance in the North American business (52% of overall top line) requires close watch. Further, revenue from BFSI and the consumer business segment was periodically influenced by the transformation in client priorities for cost optimisation. These challenges are expected to cool down in upcoming period and deliver growth across geographies and verticals. Overall, the company is expecting a pickup in demand in medium term. Hence, we retain our BUY rating with a revised target price of Rs. 4,821 using a target multiple of 30x P/E on FY26E adj. EPS.

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