Tata Consultancy Services (TCS) reported weaker-than-expected results for the fourth quarter of FY25, with revenues declining 1.0% quarter-on-quarter in dollar terms to $7.5 billion, below analyst estimates of a 0.8% drop. The company’s net profit fell 1.3% sequentially to ₹12,200 crore, missing forecasts.
For the full year, revenue rose 6.0% in rupee terms, while EBIT and PAT grew by 4.6% and 5.4% respectively. The company also generated free cash flow of ₹46,400 crore, a 4.2% increase over FY24.
Regional and sectoral drag
The revenue decline was largely driven by a 15% QoQ drop in India, primarily due to a steep ramp-down of the BSNL project. Meanwhile, BFSI (Banking, Financial Services and Insurance) showed modest growth of 1.3% QoQ, while the US market remained flat and Europe grew by 2%.
Margins, too, came under pressure. EBIT margin slipped 30 basis points sequentially to 24.2%, missing expectations. Management attributed the dip to employee interventions and promotions, which came despite the muted demand environment.
Deal wins strong despite caution
On a positive note, TCS secured deals worth $12.2 billion in Q4, marking a 20% QoQ rise, although down 8% YoY. Notably, the quarter saw no mega-deal wins. The book-to-bill ratio stood at 1.6x. For FY25, total contract value stood at $39.4 billion.
However, analysts remain cautious. “The uncertainty stemming from the BSNL withdrawal could weigh on near-term revenues, and sudden client deferrals remain a key risk,” the report said. Still, margin improvement is expected in FY26, aided by reduced third-party costs and better cost discipline.
Outlook and valuation
Analysts expect USD revenue to grow at a 3.1% CAGR between FY25 and FY27, with INR EPS rising at a 6.8% CAGR. Margins are projected to improve to 25.3% in FY26, representing a 100bp YoY expansion.
Despite near-term revenue concerns, analysts reaffirmed a BUY rating, citing strong cash generation and expected margin recovery. The target price of ₹3,850 implies a 19% upside from current levels, valuing the stock at 25x FY27 estimated earnings.
