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Investing.com -- Tata Consultancy Services (NS:NSE:TCS) stock dropped 3.3% following the company’s first quarter results that showed a revenue decline and highlighted ongoing challenges in the demand environment.
The IT services giant reported revenue of $7.4 billion, representing a 3.4% quarter-over-quarter decline in constant currency terms, falling short of analyst expectations. Despite the revenue disappointment, the company’s EBIT margin of 24.5% improved 30 basis points from the previous quarter, broadly in line with estimates.
Profits grew 6% YoY to Rs127.6 billion, beating estimates primarily due to a $79 million interest payment on income tax refund and lower effective tax rate. Adjusted for these factors, profits were in line with expectations.
The revenue weakness appeared broad-based across regions and verticals, with the company citing two main factors: a faster-than-expected ramp-down of the BSNL deal, which had a 2.8% negative impact on quarterly revenue, and a 0.6% decline in international revenues.
Deal bookings for the quarter stood at $9.4 billion, up 13% YoY, with clients prioritizing cost-cutting initiatives, vendor consolidation, and efficiency-led modernization. However, discretionary spending remained under pressure across all verticals, with retail and automotive sectors particularly impacted by recent tariff uncertainties.
Jefferies analysts noted: "TCS’s 1Q results suggest that demand environment continues to be challenged with pressures on discretionary spends."
Looking ahead, the company expects continued challenges in the second quarter with potential growth pickup in the third quarter as the second phase of the BSNL deal ramps up. Margin expansion was limited in the first quarter despite lower pass-through costs due to higher employee expenses.
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