TCS - Tata Consultancy Services Ltd. Share Price

Management expressed confidence in the outlook for 2026, citing a continuation of growth momentum seen in the previous quarter. Key highlights include:

• Q3 revenue was Rs.67,087 crore, reflecting a sequential growth of 2.0% and a year-on-year growth of 4.9%. On a constant currency basis, revenue rose 0.8% sequentially.
• Operating margins were stable at 25.2%, with a net income margin of 20%.
• The annualized revenue from AI services reached US$1.8 billion, growing at 17.3% quarter-on-quarter in constant currency.
• Total Contract Value (TCV) for the quarter stood at US$9.3 billion, which included significant wins, particularly in the BFSI sector, where TCV was US$3.8 billion.
• Management noted a solid deal momentum and engaged in multiple sectors, maintaining growth across all next-gen service lines.

Forward-looking remarks emphasize the following:

1. AI-led Strategy: TCS aims to cement its position as the world's largest AI-led technology services company, supported by investments across the full AI stack.

2. Client Engagement: They plan to partner with clients to prepare foundational technology for AI transformation and to lead with AI in competitive markets.

3. Market Expandability: Management is optimistic about demand recovery, particularly in North America and BFSI, attributing the recent softness to seasonality.

4. Talent Development: Investments in workforce skills for AI and upcoming roles are a priority, with significant training initiatives leading to a threefold increase in employees skilled in AI.

Overall, management's outlook for CY2026 is positive, bolstered by ongoing client engagement, strategic investments in AI, and a solid pipeline of upcoming deals.

Major Questions and Answers from the Q&A Section

1. Question: I am just doubling down on your initial remark of the confidence of the good CY '26... which specific segments should drive this?

   • Answer: Thank you, Sudheer. In Q3, we see a continued upward trend in demand from Q2. The ROI-driven decision-making process is quicker, particularly in short-cycle projects. Clients are focusing on AI and data, which is evident in our increasing AI revenues across all segments.

2. Question: Some key segments like North America and UK have declined... is seasonality the only reason?

   • Answer: It is primarily seasonality. The overall demand environment is improving, and we expect stronger growth as we move forward.

3. Question: Could you talk about the sharp increase in SG&A expenses?

   • Answer: The increase is due to legal expenses, specifically from M&A-related activities and heightened marketing initiatives. Some of these costs may recur, but significant one-time expenses also contributed.

4. Question: What is driving the growth in AI revenue?

   • Answer: Our AI revenue growth stems from business transformation initiatives across various industries. We focus on two areas: AI programs for business transformation and modernization of existing systems.

5. Question: Do you expect BFSI's growth momentum to return?

   • Answer: Yes, while Q3 was impacted by seasonality, we see strong deal momentum. We've previously achieved growth in BFSI, and we anticipate continuing that trend moving forward.

6. Question: What is your outlook for developed markets?

   • Answer: We remain optimistic about achieving growth better than FY '25 in international markets, having observed improving demand since Q2.

7. Question: How do you view your order book for future revenue growth?

   • Answer: Our order book is strong, ranging from US$28 billion to US$29 billion for the first three quarters. We are confident it will support growth in FY '27.

8. Question: What is the nature of the recent labor law provision taken?

   • Answer: We made a provision of Rs.2,128 crores, including Rs.1,800 crores for gratuity and Rs.300 crores for leave liability. This is considered a one-off expense and the ongoing impact will be minimal, around 10 to 15 basis points.

9. Question: When will revenue from BSNL materialize?

   • Answer: We will recognize revenue from BSNL when a formal purchase order is received. For now, the revenue remains consistent with the previous quarter.

10. Question: What are the changes in renewal economics compared to 2-3 years ago?

    • Answer: While renewals typically incorporate productivity savings, we maintain or expand the scope of work. AI has further enhanced this, as we proactively discuss productivity improvements with clients before renewals.