Tata Consultancy Q1 operating income 155.1B rupees, +0.4% y/y

Tata Consultancy Q1 operating income 155.1B rupees, +0.4% y/y

Tata Consultancy Services (TCS) is expected to report its Q1FY26 earnings on July 10, with analysts predicting a muted start to the fiscal year. According to various sources, the IT giant is likely to post a modest increase in revenues, while operating margins may contract due to the reduced contribution from the BSNL deal and reinvestments [1].

Revenue growth is anticipated to be around 1.3% quarter-on-quarter (QoQ), translating to approximately Rs 65,290 crore. In US dollars, this amounts to $7,547 million, representing a 1.3% sequential expansion. However, on a constant currency basis, revenues could fall by 0.5% QoQ, primarily due to the decline in BSNL revenues [1].

The EBIT margins are estimated to decline to 24.1% from 24.2%, with the quarterly EBIT pegged at Rs 15,749 crore, a 1% sequential increase. The net profit, at Rs 12,214 crore, is practically flat compared to the previous quarter, while earnings per share (EPS) could marginally increase to Rs 34.2 from Rs 33.8 [1].

Analysts expect deal wins between $700-900 million, with no major mega deals visible this quarter. Client spends, especially from US-based clients, will be critical to watch amid macroeconomic concerns. The performance of the BFSI vertical, which is TCS's largest revenue generator, will also be closely tracked. Investors will look for updates on cost optimization projects and how they offset margin pressures from reinvestments [1].

Although Q1FY26 is expected to be operationally soft, the long-term thesis of TCS remains intact, given its strength in brand, client diversity, and large deal pipeline. The BSNL contract, though a margin tailwind, remains strategically valuable [1].

In rupee terms, revenue is expected to rise by 0.3% to Rs 64,694.5 crore, following a 1.2% appreciation in the average rupee rate against the dollar. Net profit may increase by a modest 0.5% to Rs 12,294 crore. The revenue performance will be supported by a significant 5-7% drop in the dollar against the pound and euro [2].

Operating margins are expected to remain flat or improve marginally by 20-30 basis points, given foreign exchange benefits and deferred salary increases. The company does not provide revenue and profit growth guidance, but management commentary on new deals and hiring trends will be crucial [2].

Key things to watch include deal pipeline conversion, hiring trends, outlook on operating margins, trends in Generative AI, and updates on the financial services and healthcare verticals [2].

References:
[1] https://www.zeebiz.com/companies/news-tcs-q1-results-preview-tata-group-firms-dollar-revenue-may-grow-to-7547-mn-but-bulls-remain-cautious-heres-why-372907
[2] https://m.economictimes.com/markets/stocks/earnings/tcs-expected-to-show-marginal-revenue-growth-amid-currency-fluctuations/articleshow/122353474.cms