TCS Q3 profit soars 12%, revenue misses forecasts

MUMBAI, INDIA — Tata Consultancy Services (TCS), India’s largest IT services provider, reported a 12% year-on-year (YoY) rise in net profit for the third quarter of FY25, reaching ₹12,380 crore (US$1.44 billion). 

However, its revenue of ₹63,973 (US$7.45 billion) crore fell short of Bloomberg estimates of ₹64,748 crore (US$7.54 billion). Revenue grew 5.6% YoY but declined 0.4% sequentially, reflecting seasonal challenges and cautious discretionary spending by clients across major markets.

Record order book boosts growth outlook

The company’s total contract value (TCV) hit an all-time high of US$10.2 billion in Q3FY25, up from US$8.6 billion in Q2 and US$8.1 billion a year ago.

CEO K Krithivasan highlighted this as a key achievement, noting strong deal momentum in North America and growth in verticals such as banking, financial services, and insurance (BFSI) and consumer packaged goods (CPG). 

“We are pleased with the excellent TCV performance in Q3… We also see an improvement in sentiment on discretionary strength,” he said.

Mixed regional and sectoral performance

TCS faced headwinds in North America, where revenue declined 2.3% YoY for the fifth straight quarter. Europe showed mixed results, with the United Kingdom growing 4.1%, while Continental Europe contracted by 1.5%. In contrast, emerging markets like India surged 70.2%, driven by deals such as the Bharat Sanchar Nigam Ltd (BSNL) contract. 

The Middle East & Africa, Asia-Pacific, and Latin America also delivered growth of 15%, 5.8%, and 7%, respectively.

Among sectors, energy, resources, and utilities grew by 3.4%, while BFSI recorded modest growth of 0.9%. Consumer business rose by 1.1%, reflecting early signs of recovery in discretionary spending.

TCS sees U.S. policy stability as key to recovery

TCS is also optimistic about a rebound in client confidence and discretionary spending in North America, even as revenue from the region declined for the fifth consecutive quarter. Krithivasan expressed hope that the incoming U.S. administration under Donald Trump would bring greater policy clarity, which could positively influence client sentiment and spending decisions.

“Once the new [U.S.] administration comes in, it will remove any policy uncertainty,” Krithivasan said during a post-earnings press conference. He highlighted that a combination of policy stability, a record-high order book, and improving market conditions could bolster confidence in discretionary programs over the coming years.

North America remains TCS’s largest market, accounting for nearly half of its total revenue. However, ongoing economic challenges and cautious spending by clients have adversely affected performance in recent quarters. Despite these headwinds, the company is banking on stronger deal momentum and improving macroeconomic conditions to drive a recovery in the region.

Margins resilient amid volatility

Operating margins stood at 24.5%, down by 50 basis points sequentially due to cross-currency volatility. CFO Samir Seksaria credited strong execution and cost controls for maintaining margin stability despite external challenges.

“In a quarter that saw significant cross-currency volatility, TCS’s strong execution, cost management and deft currency-risk management helped deliver healthy margin improvement and free cash flows. Disciplined investment in talent and infrastructure should lend good support to long-term business growth,” he stated.

Investments in talent and AI drive optimism

During the quarter, TCS reduced its workforce by 5,370 employees after two consecutive quarters of additions, bringing its total headcount to 607,354 as of December 31, 2024. 

The company continued to invest in upskilling employees and integrating Generative AI (GenAI) into its service offerings to drive innovation and productivity gains.

Looking ahead to the calendar year 2025, Krithivasan expressed optimism about stronger growth compared to CY24, citing improved client sentiment and strategic investments in emerging technologies like GenAI.

Analysts remain positive despite revenue miss

While TCS missed revenue expectations, analysts praised its record order book and stable margins as indicators of long-term growth potential. 

Shaji Nair of Mirae Asset Sharekhan commented: “Commentary on early signs of revival in discretionary spend in some verticals is positive and is likely to set a good undertone for CY25. TCS in Q1 reported mixed results with slightly larger than expected revenue decline in a seasonally soft quarter while margins have shown an uptick with improving deal wins.”

“We have ‘buy’ rating on the stock,” Nair added.

With a third interim dividend of ₹10 (US$0.12) per share and a special dividend of ₹66 (US$0.77) per share declared, TCS remains focused on delivering shareholder value amid evolving market conditions.