As competitors double down on AI, TCS must adapt fast or risk losing its edge
Tata Consultancy Services (TCS), India’s leading IT services firm, is navigating a complex landscape marked by macroeconomic headwinds, evolving client demands, and intensifying competition. Despite maintaining a strong market presence, recent financial results and strategic shifts indicate challenges that could impact its long-standing dominance in the industry.
Financial Performance: A Closer Look
In the first quarter of fiscal year 2025, TCS reported a net profit of ₹12,040 crore, reflecting an 8.7% year-over-year increase but a 3.16% decline sequentially. Revenue rose by 5.4% to ₹62,613 crore. The operating margin stood at 24.7%, and the company declared an interim dividend of ₹10 per share.
The growth was significantly bolstered by a ₹15,000 crore deal with Bharat Sanchar Nigam Ltd (BSNL), leading to a 61.8% year-over-year increase in the India business segment. However, the absence of similar large-scale deals in other markets raises concerns about the sustainability of such growth.
Market Dynamics and Client Behavior
TCS’s performance in key markets, particularly North America, has been underwhelming. The company missed revenue estimates in the third quarter, with the North American market underperforming for the fifth consecutive quarter. This trend is attributed to reduced discretionary spending by clients amid global economic uncertainties and geopolitical tensions.
Clients in sectors like retail, travel, and automotive are exhibiting caution due to tariff-related concerns, potentially leading to cost-cutting measures. In contrast, the Banking, Financial Services, and Insurance (BFSI) sector, which contributes significantly to TCS’s revenue, remains relatively stable.
Internal Challenges: Leadership and Workforce
Under the leadership of CEO K. Krithivasan, who took over in June 2023, TCS has undergone organizational restructuring, including the redistribution of responsibilities following the retirement of COO N.G. Subramaniam. Despite these changes, the company has faced challenges in matching the growth trajectories of competitors like Accenture and Infosys.
Employee attrition remains a concern, with the company reporting a 13% attrition rate in Q3 FY25. Additionally, TCS has announced a delay in employee salary hikes, initially scheduled for April 2025, citing global economic uncertainty.
Strategic Focus: Embracing AI and Innovation
Recognizing the transformative potential of artificial intelligence (AI), TCS is investing in AI-driven solutions to enhance its service offerings. The company has launched initiatives focusing on AI and digital transformation, aiming to stay competitive in a rapidly evolving industry.
However, competitors have made significant strides in this domain. Accenture, for instance, has secured over $5 billion in generative AI deals in the past two years, outpacing TCS’s efforts in this area.
Outlook: Navigating the Road Ahead
TCS’s strong brand value, extensive client base, and commitment to innovation position it well to navigate current challenges. The company’s focus on AI, digital transformation, and expanding its presence in emerging markets offers avenues for growth.
However, sustaining its market leadership will require addressing internal challenges, adapting to changing client behaviors, and staying ahead in technological advancements. As the IT services landscape continues to evolve, TCS’s ability to innovate and respond proactively will be critical to its long-term success.
