TCS's outlook lends comfort, but a risk clouds FY26 revenue prospects
Subscribe to enjoy similar stories. Tata Consultancy Services Ltd (TCS) delivered what the Street had been eagerly awaiting—an optimistic demand outlook. The management of the IT services major highlighted early signs of recovery in discretionary demand across key sectors such as banking, financial services and insurance (BFSI), and consumer, during its December quarter (Q3FY25) earnings call.
Additionally, decision-making for smaller projects has accelerated. Unsurprisingly, TCS’s shares surged over 5% on the National Stock Exchange in early trading on Friday. According to the management, demand recovery is attributed to easing inflation, the US Federal Reserve's rate cut, and diminishing political uncertainties.
Coupled with a robust order book, this is expected to sustain revenue growth momentum. Total contract value (TCV) of deal wins stood at $10.2 billion in Q3FY25, reflecting a 26% year-on-year increase, achieved without the boost from mega deals. This suggests a resurgence in smaller-sized contracts, with the return of short-duration deals often serving as an early indicator of a revival in discretionary IT demand.
TCS’s book-to-bill ratio stood at 1.35x. Read this | IT: Forget Q3 results, focus on commentary However, while the TCS management anticipates 2025 to be better than 2024, concerns about the company’s revenue growth outlook persist. The Bharat Sanchar Nigam Ltd (BSNL) project is 70% over and its revenue contribution is likely to taper off in the next two-three quarters.
TCS plans to backfill BSNL revenues, with growth next year expected to be driven by developed markets. But for now, revenue growth visibility for FY26 is hazy. “We expect the BSNL deal to ramp down sharply after Q4FY25.
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