On April 2, U.S. President Donald Trump imposed a series of tariffs on imports from several countries, raising concerns about a global tariff war. Analysts worry that the world is at the cusp of a recession.
Any recession is bad news for IT services companies, as Indian IT outsourcing revenues took a hit when Fortune 500 companies blocked their spending. Influence keeps shareholders following closely behind.
From January 1 to April 1, TCS shares fell 13.4%, down 7.23% from April 2 to April 8. This percentage has fallen by 20.6% since the beginning of the year.
TCS’ fifth CEO Kunchitham Krithivasan faces his biggest test in 57 years – managing more than 600,000 employees amid macroeconomic uncertainty. Genai poses an existing dilemma for the country’s $283 billion IT industry, which will be difficult for TCS veterans to digest in addition to the already complete macroeconomic uncertainty.
The Mumbai-based company may face a third related challenge, the form of customer ramps in the previous fiscal year.
Krithivasan easily guides behemoths like TCS, which earns nearly $30 billion a year, about $82 million a day. In this background, Mint Focus on five important aspects of TCS’ fourth-quarter earnings, held on April 10.
1. Demand prospects
The primary issue for the country’s largest IT outsourcing provider is the uncertain macroeconomic environment. While tariffs and counter-tax rates are not expected to directly affect IT outsourcing, customers, including the world’s largest companies, are expected to back down their technology spending, which could lead to lower demand for IT services, while TCS’s revenue is lower. More than 90% of the company’s revenue comes from foreign customers.
Such conditions could lead to demand outlook for Krithivasan on Thursday. While TCS does not provide guidance on revenue, its prospects for global technology services are paving the way for other IT outsourcing providers, which will announce its full-year earnings later this month.
2. Revenue growth
TCS ended its fiscal 24-year with $29.1 billion in revenue and faced a slowdown in depression. Its revenue grew 4.1% year-on-year, the slowest pace in three years. Revenue increased by 4.6% in the first nine months of fiscal 25 (April to December 2024). The pressure from internal challenges, such as internal challenges, does not give you a reason to cheer on.
“In the 2025 Finance Ministry, TCS faces a range of challenges due to unexpected changes in planned ramps and clients’ procurement strategies,” said Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna, an institutional equity analyst at Kotak, in a note on March 27.
This year, TCS is expected to lose $440 million in business from at least three customers – Postal Systems AG, media rating company Nielseniq and life insurance company Transamerica Life Insurance Co. Peer Wipro Ltd recently received a big deal from one of TCS’s big accounts, Phoenix Group. This has caused analysts to question TCS’s transaction execution.
“TCS is well known to defend its share of the wallet, but the view that large competitors who gain a foothold in a strategic account may lead to a decline in execution capabilities and focus on the upcoming results,” Kotak analysts said.
Given that TCS does not provide guidance for revenue, analysts will look for clues that may suggest the company’s prospects.
3. Profitability
TCS’ operating margin will be an important indicator as the company may delay salary hiking or reduce salary, with less currency flowing into the company’s vault if the demand for the business is low.
TC always follows a well-organized cycle, with its profitability peaking at the end of the fiscal year. This is because TCS is the only major outsourcing provider to pay at the start of the finances. From April to September, most of the impact of salary is absorbed during the first six months of finance.
TCS has an operating margin of 24.5%, with the highest among peers including Infosys Ltd, HCL Technologies Ltd and Wipro, ending its three months to December 2024 with operating margins of 21.3%, 19.5% and 17.5%, respectively.
4. Recruitment Program
Reducing the demand for IT services can lead to a decrease in demand for employees, both on campus and on the side. Adding Genai-led automation to the mix can be a double-handed plan for companies to add employee plans.
During the earnings announcement period, the company’s highest brass can make predictions about the fresh recruitment plan for the year. TCS added 5,808 employees in the first nine months of 2024, the most among the top five after the country’s second largest Infosys, which added 6,189 employees.
Considering the size of employees, the company’s recruitment requirements exceed the requirements of its peers. The technology services company outlines a plan to hire 40,000 freshmen by March 2025.
5. Genai
Genai threatens to swallow IT outsourcers’ work, as new technologies can automate human tasks, thus reducing the dependence on humans on certain types of work.
TCS has not collected revenues through new technology, but Chairman Chandrasekaran requires his general to have a Genai component in all of his deals. Analysts and Doomers say Genai is swallowing up work related to customer support, application development and maintenance, which accounts for about 40% of the company’s revenue.
This means TCS’ $11.6 billion is threatened by Genai as customers will seek lower contract renewal rates, as fewer people will be paid due to the benefits of automation.
