Tata Consultancy Services Ltd., which reported its third-quarter results on Thursday, is expecting 2025 to be better than last year as it sees early signs of revival in discretionary spending in some business verticals amid easing macroeconomic uncertainty.
TCS' net profit rose 4.1% sequentially to Rs 12,444 crore in the quarter ended Dec. 31, 2024, in line with the consensus estimate of Rs 12,537 crore shared by analysts tracked by Bloomberg.
Even as the third-quarter performance remained subdued, TCS expects the near future to look better as it anticipates discretionary spending — which gives IT companies growth impetus with companies spending on transformation projects — to pick up soon.
"We have been seeing improvement in sentiments on discretionary spend," Chief Executive Officer K Krithivasan said during an earnings call. "I did talk about the BFSI and consumer business, but we've been seeing early trends in a few other verticals also. So overall, that's what is giving us confidence in the future."
Seeing what we're seeing today, we'll be comfortable in saying CY25 should be a better than CY24.K Krithivasan
Based on the order book and customer discussions, there is confidence that discretionary spending will increase. While it is not yet fully recovered, there are signs of a revival in discretionary spending, according to the CEO.
With the new administration coming in the US, the uncertainty will ease and the clarity on policy will aid the easing too. This will result in better budgets in the North America region, especially in the banking, financial services and insurance vertical, the managing director added.
Also Read: TCS Announces Dividend Of Rs 76 Per Share
Q3 Explanation
On the subdued numbers, Krithivasan said that the macroeconomic factors from the second quarter persisted in the December quarter, along with seasonal weakness, and software and discretionary-demand environment. This resulted in a slowdown as most verticals and markets experienced sequential negative growth compared to the previous quarter.
"In spite of the furloughs and Q3 seasonality, we were able to improve our margins by 40 basis points, and that was given by operational efficiencies coming in from productivity utilization and pyramid," Chief Financial Officer Samir Seksaria said. "While these levers helped us in this quarter, they do provide further opportunity in the next quarter also. We'll be banking on this labour to improve our margins."
He added that TCS is committed to the 26–28% margin guidance and aims to come closer to 26% mark in the near future.
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