TCS margins decline as third party costs escalates

Tata Consultancy Services (TCS) has reported a 60 basis points decline in operating margin in the September quarter owing to higher third-party expenses incurred following a large transformation deal with Bharat Sanchar Nigam Limited (BSNL). TCS’ cost of equipment and software licences went up a whopping 600 percent to Rs 3,230 crore in the second quarter from Rs 462 crore in the year-ago period.

India’s largest software services company reported a net profit of $1.43 billion for the September quarter, down 1.59% from the preceding quarter. This is the first time in five years that the company has ended the September quarter with a sequential decline, though its net profit has been slipping since the March quarter of this year.

According to a TCS filing, its equipment costs doubled from the June quarter to $386 million, though the company did not specifically attribute it to the BSNL deal. TCS is in the process of setting up data centres across the country for the state-run telecom operator, as part of a $1.83-billion 4G network deployment order it won in May 2023.

At the heart of TCS’s second quarter growth was its communication, media and technology business segment, which earned more than 90% of its incremental revenue of $165 million. TCS got $1.44 billion revenue from companies in this segment.