TCS - Tata Consultancy Services Ltd. Share Price

Management provided a cautious outlook for TCS, indicating a continued focus on adaptability amid global disruptions. They highlighted that enterprise demand remains strong despite economic uncertainties, with a commitment to investing in capabilities and partnerships to support long-term growth. Management noted a quarterly revenue decline of 3.1% year-on-year in constant currency and acknowledged the impact of decision delays on revenue conversion.

Key forward-looking points include:

1. Total Contract Value (TCV): TCS signed contracts worth $9.4 billion in Q1 FY26, up 13.2% year-on-year, demonstrating robust demand even in a challenging environment.

2. Revenue Performance: Revenue for Q1 FY26 stood at Rs.63,437 crores ($7,421 million), marking a year-on-year growth of 1.3%. However, there was a 1.1% decline in dollar terms due to constant currency adjustments.

3. Margins and Profitability: Operating margin was reported at 24.5%, with a net margin of 20.1%. Management indicated that higher employee costs were a factor influencing margins, as investments in talent and capabilities continue to be prioritized.

4. Investment in Skills: TCS reported that 15 million hours were dedicated to skill enhancement in emerging technologies in the quarter, with 114,000 employees acquiring high-order AI skills.

5. Demand Trends: Enterprises are increasingly focused on cost optimization and efficiency-led technology transformations, with AI adoption remaining a significant driver across industries.

6. Geographic Focus: Management expressed optimism for better performance in the international market during FY26, particularly in North America, despite some softening in BFSI sectors, especially in Europe.

The leadership emphasized that while immediate challenges exist, there is confidence in TCS's ability to navigate through them and remain a reliable partner for clients' long-term transformation strategies.

1. Question 1: "Apart from the BSNL deal, are there any other client-specific situations you might be going through in any vertical or geography?"
   Answer: "No, there is no specific client situation now."

2. Question 2: "Are you still reiterating that FY '26 will be better than FY '25 at the overall company level or more so you're talking about the core markets?"
   Answer: "We are confident that the international market will do better in FY '26 than FY '25. While we aspire to drive overall growth, it's a high bar to cross."

3. Question 3: "What are the risks to the September quarter? Are the project delays fully reflected in the current numbers?"
   Answer: "Most delays have been accounted for, but some residual effects may linger in Q2. We expect Q2 to be at least better than Q1, depending on market conditions."

4. Question 4: "What is pulling down your margin compared to where it was before the BSNL deal?"
   Answer: "While margins are down by 20 basis points year-on-year, investments in capacity amidst demand contraction have affected margins, but we aim to improve operating leverage going forward."

5. Question 5: "Is the international revenue expected to be similar to last year?"
   Answer: "Yes, we anticipate constant currency international revenue to remain comparable to last year's figures."

6. Question 6: "Are you seeing a demand for productivity pass-through across industries due to current demand conditions?"
   Answer: "Pricing has been stable, but demands for productivity re-negotiation do arise, typically during deal signings rather than after."

7. Question 7: "Could you provide an update on the pipeline replenishment and how it's going?"
   Answer: "The overall pipeline remains strong, replenishing deals from Q1 closures across various verticals and geographies."

8. Question 8: "When do you expect the new BSNL order to ramp up?"
   Answer: "We are awaiting circle-wise purchase orders. Execution should mirror our delivery on prior projects once these are received."

9. Question 9: "Considering current employee costs and capacity, how will margins hold up?"
   Answer: "As demand increases, we will optimize our capacity and focus on utilization and productivity to manage margins effectively."

10. Question 10: "Are you concerned about clients dropping below the $100 million revenue threshold?"

Answer: "While any revenue reduction is a concern, we believe growth will return, and clients will move back above that threshold."