TCS Q3 FY25 Preview: Earnings Expected to Grow Despite Furloughs, Margin Expansion Likely

Tata Consultancy Services (TCS), India’s largest IT services company, is set to announce its third-quarter earnings for FY25 on January 9, marking the start of the Q3 earnings season. The October-December period typically sees subdued growth for IT services companies due to the impact of furloughs, but the outlook for technology spending in CY25 is showing signs of improvement, signaling a potential acceleration of recovery observed in H1FY25.
Revenue Outlook
TCS is projected to report a revenue of ₹64,190 crore for the December 2024 quarter, reflecting a slight decline of 0.11% from ₹64,259 crore in the previous quarter. In USD terms, revenue is expected to fall 0.72% to $7,615 million from $7,670 million quarter-on-quarter. Analysts from Nuvama Institutional Equities predict a marginal 0.1% constant currency (CC) growth, offset by furloughs and a decrease in BSNL-related revenue.
Despite these challenges, TCS is expected to maintain a healthy deal pipeline, with particular strength anticipated in the BFSI sector, though weakness in the UK, Europe, and manufacturing sectors will need to be monitored closely.
Profit and Margin Expectations
TCS is likely to report a net profit of ₹12,298 crore, marking a 3.26% growth from ₹11,909 crore in the previous quarter and an 11.2% increase year-on-year. At the operational level, the company’s earnings before interest and tax (EBIT) is expected to rise by 1.16% to ₹15,645 crore, and EBIT margin is likely to improve by 20 basis points to 24.3%.
The expansion in margins is attributed to lower costs from the BSNL deal, improved operational efficiency, and the depreciation of the Indian rupee against the US dollar, benefiting TCS, which derives more than half of its revenue from the US.
Dividend Announcement
Along with its Q3 earnings, TCS has announced that its board will consider declaring a third interim dividend. The dividend record date has been set for Friday, January 17, 2025. This news has added to investor optimism, with TCS shares trading 1.60% higher at ₹4,092.45 per share as of 2:55 PM.
What to Watch Out For
Key aspects to watch during TCS’ earnings announcement include management’s commentary on demand trends, pricing strategies, and the future outlook for the deal pipeline. According to Motilal Oswal Financial Services, the real catalyst for the IT sector will come after Q3, once client budgets for CY25 are finalized and shifts in client behavior become clearer.
TCS’s performance this quarter will be a critical indicator of the broader market’s health, setting the stage for what could be a more robust recovery in the upcoming quarters.