TCS Q1 Earnings Preview: Another quarter of muted profit growth on cards? 5 key things to watch

Mint

09-07-2025

TCS Q1 Earnings Preview: It bellwether Tata Consultancy Services (TCS) is set to report its April-June quarter (Q1) earnings of the current financial year on Thursday, July 10.
Against the backdrop of the ongoing trade war—sparked by US President Donald Trump's tariff policies—muted discretionary spending by clients in key North American markets and rapid business transformation driven by artificial intelligence (AI) are weighing on sentiment. In this environment, investors are likely to focus more on management commentary than on the headline numbers from the previous quarter.
Experts expect management commentary on near-term demand trends, client discretionary spending, the pace of ramp-up in existing deals, key deal wins, and margin guidance to be in focus.
Besides, capital allocation strategies, including any buyback or dividend announcements, may also draw attention.
Let's examine five key factors that will be the focus after TCS reports its June quarter scorecard.
TCS, due to its sheer size and market presence, serves as a bellwether for how the Indian IT sector is faring amid the current environment of heightened uncertainty.
As far as expectations are concerned, experts expect the company to report muted growth.
Brokerage firm Phillip Capital expects a 0.6 per cent year-on-year (YoY) fall in profit after tax (PAT), and a nominal 3 per cent YoY growth in revenue.
"Topline to be impacted lower contribution from BSNL deal (nearly $50 million) and muted performance in core markets of US, EU due to weak demand," said Phillip Capital.
Further, EBITDA may remain almost flat, while EBITDA margins may shrink by 66 bps YoY despite deferral of wage hike due to lack of growth support and largely optimised operating levers, Phillip Capital said.
Kotak Institutional Equities forecasts revenue decline of 0.4 per cent in constant currency (CC), led entirely by a decline in BSNL revenues.
Kotak expects the EBIT margin to decline on a YoY comparison despite deferral of the wage revision normally scheduled in April of every year.
"Impact on margins is due to a lack of any leverage from growth. Despite tailwinds from currency, EBIT margin will stay flat sequentially," said Kotak.
Analysts at Choice Institutional Equities expect TCS to witness constant currency de-growth of 0.7 per cent quarter-on-quarter, which would be offset by approximately 200bps quarter-on-quarter cross-currency tailwinds.
"The constant currency degrowth would be led by slower conversion in BSNL deal as well as other deals, as discretionary spending by clients is either on hold or subdued given the change in US Tariff policy," Choice Institutional Equities said.
The key focus area in TCS's results will be management commentary on the demand outlook. The impact of a prolonged trade war on demand in key geographies and key segments will influence market sentiment about the stock.
"Key focus areas for TCS in the upcoming results include revenue growth and demand outlook, particularly across BFSI and key geographies like North America and Europe. Investors will closely watch guidance on FY26 and signs of recovery in discretionary tech spending," said Saurabh Jain, the head of equity research (fundamentals) at SMC Global Securities.
Investors will also focus on the demand outlook, large deal wins, total contract value (TCV), and deal pipeline in the key markets.
After the Q4FY25 results, TCS CEO K Krithivasan highlighted delays in decision-making and project starting regarding discretionary investments. Investors will be keen to see if there are signals of increased discretionary investments by clients in the near future.
"Deal wins, especially large contracts, and total contract value (TCV) will be critical indicators of future growth," Jain said.
TCS's attrition was 13.3 per cent for the last twelve months until March 31 this year. Investors will also focus on the IT major's hiring plans in uncertain times.
Increased hiring will indicate the company anticipates an improved demand scenario in the near future.
"Margins, cost control, and operational efficiency remain essential, alongside trends in attrition and hiring," said Jain.
A key area to focus on will be the company's plans for digital transformation initiatives and management's views on how it sees GenAI to impact the IT industry.
"Updates on GenAI and digital transformation initiatives, as well as their monetisation, will be keenly tracked," said Jain.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.