TCS Q1 profit up 4.61 pc, sees West Asia-hit demand come back in 2nd quarter

Mumbai, Jul 9 (PTI) The country's largest IT services company TCS on Thursday reported a 4.61 per cent increase in its June-quarter net profit to Rs 13,349 crore, and guided towards an improvement in demand impacted by the West Asia crisis, returning in the ongoing quarter. In the results that come amid heightened worries over the sustenance of growth in the USD 315 billion domestic IT sector in the age of artificial intelligence, TCS said its net income rose 8.5 per cent on-year to Rs 13,849 crore if one were to exclude exceptional items. The company's managing director and chief executive, K Krithivasan, said the demand environment remained sluggish during the reporting quarter amid ongoing conflicts and noted that Q1 also saw some clients deferring work. However, even though the conflicts continue, he sounded more sanguine. "We are still optimistic that the demand will resume sometime in Q2 primarily because our customers have a significant amount of pent-up technology backlog to be completed," he said on a call with analysts. From a topline perspective, TCS' revenues jumped by nearly 14 per cent year-on-year to Rs 72,275 crore in the June quarter and were up 2.23 per cent against the March quarter's Rs 70,698 crore. It reported an annualised AI revenue of USD 2.6 billion, which was up 13.6 per cent on-quarter. Krithivasan said the quarter reflects continued growth momentum and the strength of our strategic positioning, despite geopolitical and macro-economic headwinds. "As customers accelerate investments in AI, modernization, cybersecurity, sovereign cloud and platform simplification, our strong deal conversion, improving client mining and expanding ecosystem partnerships position TCS well to translate opportunity into sustained growth," Krithivasan added in a statement. The company said it bagged USD 9.5 billion of total contract value (TCV) or new deals in Q1, which included a USD 800 million AI-led transformation mega deal with SKF. Its chief operating officer, Aarthi Subramanian, noted that it signed strategic partnerships with Anthropic and Mistral to expand its AI ecosystem. With global tech giants creating a lot of interest with their forward deployed engineers programme to assist clients with AI transitions, Subramanian said TCS also had an internal initiative akin to this during the ingress of digital work a few years ago, and added that it is aiming to have 1 per cent of its talent which will undertake FDE-like work going forward. From a financial perspective, it reported an operating profit margin of 24 per cent during the quarter as against 25.3 per cent in the April quarter, which was expected to go down given the wage hikes and also new investments. Chief financial officer Samir Seksaria said it suffered an impact of 1.70 per cent due to the two factors, but currency movements benefitted by 0.40 per cent to limit the hit. The company, which has a stated aspiration of keeping the operating profit margin in the 26-28 per cent mark, is aiming to exit FY27 at over 25 per cent level, he added. The headcount rose by over 9,200 staffers in the three months to June to 5,93,798 employees as of June 30, it said, adding that the long-term attrition in the IT services came at 13.6 per cent. "We continue to invest in AI infrastructure, next-generation skill development platforms, to enable our people to be future ready, while fostering a workplace where every associate feels safe, valued, trusted and empowered to grow," its chief human resources officer, Sudeep Kunnumal, said. He added that the company has given offers to over 14,000 freshers in Q1 and continues to be on campuses looking for AI-native talent. Amid AI's dominance in conversations, Krithivasan made it clear that the new-age tech will not reduce white-collar jobs. From a sectoral perspective, all the domains reported a growth in revenues when compared on-year except the consumer business, while from a geographic perspective, Latin America and UK reported lower revenues in Q1FY27 as against Q1FY26. Except consumer companies, are expected to show improvements in demand for tech. Its revenues from India, which had been on a decline following the culmination of the multi-thousand crore BSNL deal, jumped 22.9 per cent on-year and 7.6 per cent on-quarter. Analysts at the domestic brokerage Equirius Securities said the results are marginally better than its expectations. TCS shares ended the session 0.52 per cent down at Rs 2,047.75 on the BSE on Thursday against a 0.31 per cent jump on the benchmark Sensex. PTI AA MR