As BSNL orders tapered, IT majors, who had hoped for better margins for the April-June period, instead faced pressure due to rising wage costs. TCS added net over 6,000 employees in anticipation of order execution, but demanding contraction in Q1 meant that it would not be able to book forecast revenues, increasing employee costs.
In major North American and UK markets, TCS recorded slight growth, but Europe was slower. US BFSI is growing slowly, albeit slowly, but other regions remain slow. The manufacturing industry has performed well overall, but the automotive segment is behind. Hi-Tech has performed better under Aerospace, but retail and communication continue to show stress.
The last 12-month basis increased to 13.8%, the first in two years, slightly above the company’s comfort level. This illustrates mid-level exhaustion and potential supply-side problems for a particular skill set. TCS has yet to announce wage increases that year, but plans to focus on employee engagement to manage attrition.
Margin management is unlikely to be a major challenge as TCS plans to drive higher utilization and productivity in the coming quarters. The postponement of the project and the termination of some projects resulted in lower utilization and productivity levels in the first quarter. Improved usage will help the company’s anti-margin pressure if it decides to increase employee compensation or to strengthen its execution of new BSNL transactions protected in May.
Transactions increasingly include built-in AI components that TCS is actively offering to clients. The monetization of AI services remains in the early stages, changing rather than fixed prices. Clients are seeking AI integration as part of their transaction negotiations, including the productivity gains built into these contracts.
The Global Capacity Center is also affecting the demand environment, but the impact is not as important as initially expected.
