Tata Consultancy Services Ltd Q1 2026 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : Krithi, just a couple of questions. So apart from the BSNL deal, is there any other client specific situation you might be going through in any particular geography?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : No. In general, in any vertical or geography apart from the BSNL deal, are you seeing any other client specific situation?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : And just some clarification on your comment in the press release. Are you still reiterating that FY26 will be better than FY25 at the overall company level or more so you're talking about the core market?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : And last question from my end. So you mentioned that by July end probably, we'll see some clarity and pent up demand. So from the time that US started announcing the trade deals with major trading partners like China, UK, et cetera, are you seeing that the peak of the uncertainty is already behind and some amount of improvement in the client decision making process?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : Welcome Aarthi to the TCS team. My best wishes. My first question was it appears like decision making, which you spoke about deteriorated towards the end of the quarter. So what are the risks to the September quarter? What I'm trying to understand is all the project delays and the pauses which happened during the quarter, is it fully reflected in the number which we have reported, or there's more to come into the September quarter as well?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : My second question was on margin. So before we entered with the BSNL deal, our margin was trending about 25%, 26% at a EBIT level. And understandably, after that, the margin came down, and now we have exited from the BSNL deal, but our margin is below the level where it was prior to BSNL deal. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 10, 2025 / 1:30PM, TCS.NS - Q1 2026 Tata Consultancy Services Ltd Earnings Call Between this period, you have lowered your SG&A expenses. I would imagine that your employed pyramid also would have improved. You have spoken about that how productivity has improved over the last one year, and pricing also seems to be stable. So what is pulling down your margin compared to where it was before the BSNL deal?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : Just one clarification on the international revenue to be similar to last year which you have spoken about. Is that in USD terms you're talking about or constant currency because on a full year basis, we'll have a sizable cross currency impact?

Question: Ankur Rudra - JPMorgan - Analyst : And the first question is in terms of the weakness you've seen across a range of industries and you did highlight it's to do with the trade affected sectors and geopolitics in general. Could you also mention if there's any kind of I wouldn't say pricing pressure, but any kind of out of turn demand for productivity pass through that you may be seeing in across industries, perhaps more because of the current demand environment?

Question: Ankur Rudra - JPMorgan - Analyst : And will this impact the revenue conversion from the signings because we've had our book-to-bill at about 1.3 for a while, but the revenues just haven't picked up? I understand some of it is more near term because of the recent trade uncertainties, but do you think AI infused productivity pass throughs might impact the revenue conversion we might have in the medium term?

Question: Ankur Rudra - JPMorgan - Analyst : Could you talk a bit about how the pipeline replenishment is going on? I understand in the near term, there's been some deferrals and delays, but in terms of overall pipeline formation, how is that progressing?

Question: Ankur Rudra - JPMorgan - Analyst : Just last question on margins. You did highlight that you're investing in talent, which is why margins haven't picked up despite the BSNL rundown. Now you have a new BSNL contract that will be ramping up perhaps from the next quarter onwards. Isn't there going to be a significant headwind on margins? How should the margin trajectory be for the rest of the year? Are there any levers you might pull to hold your margins here?

Question: Ankur Rudra - JPMorgan - Analyst : And this is a quick follow up, how much of the utilization improvement is dependent on revenue growth on the international business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 10, 2025 / 1:30PM, TCS.NS - Q1 2026 Tata Consultancy Services Ltd Earnings Call

Question: Ankur Rudra - JPMorgan - Analyst : I was asking about second quarter or second or third quarter, for you to be able to improve utilizations or optimize that, isn't that group dependent?

Question: Ankur Rudra - JPMorgan - Analyst : Best of luck.

Question: Ravi Menon - Macquarie Research - Analyst : Looks like there have been significant hiring probably at the mid and senior levels because I see that despite the BSNL contracts pass through costs going down, so direct costs have not gone down as much. Would that interpretation be right?

Question: Ravi Menon - Macquarie Research - Analyst : So I was asking there has been significant mid and senior level hiring because your direct costs have not gone down much in proportion to the BSNL cost.

Question: Ravi Menon - Macquarie Research - Analyst : It's better now. I can just repeat that one more time. I was just saying that with the BSNL pass through cost, we would have expected to see a lot more decline in the direct costs, but it looks like employee numbers are not up to much but I think we've probably done a lot more. We didn't see level hiring apart from the junior level hiring that we do normally.

Question: Ravi Menon - Macquarie Research - Analyst : And BFSI, we've actually seen a slight decline Q-o-Q. This is, I'd say, kind of reset right the momentum that we had seen beginning of last year, but banks have actually been reporting good results. Any positive signs that you're seeing from banks customers now or this is expected to continue?

Question: Ravi Menon - Macquarie Research - Analyst : One last question. On the high tech side, that's where we had seen the spending cuts start. Now that seems to be trending up, and this is where we've also seen some of your peers have to pass on significant productivity improvements. Looks like you're not seeing any of -- any such demands, right?

Question: Ravi Menon - Macquarie Research - Analyst : Best of luck.

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : So the first question was around the new BSNL order we received in May. When do we expect this to ramp up? I mean is this going to be a one-shot ramp up in 2Q and then ramp down in the next quarter? That's the first question. And the second question is around margins. Again, I understand that we are carrying excess capacity, but considering we have a tradition trending upwards of 13%, why would we carry this capacity? I mean do we expect a materially better H2 with regards to growth in anticipation of which we are holding this capacity because our cost of revenues, the employee costs at 47.6% is probably at an all-time high? And considering we will have BSNL headwinds coming in 2Q as well as the potential wage hike, just I don't understand how much of this will be offset by the operating leverage that we're expecting. So those were the two questions.

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : So just to sort of follow up, our employee costs are, as I was mentioning, almost at an all-time high. So as growth picks up, we expect that to materially trend downwards towards the 45% range, let's say over the next two, three quarters. That's where we should be expecting those gains to come from?

Question: Nitin Padmanabhan - Investec Bank (UK) Plc - Analyst : You sounded pretty cautious on BFSI overall in the commentary. But if I look at the deal wins on a trailing 12 months, BFSI deals wins seem to be up 12%. So if you could just help contextualize are you seeing any re-scoping downwards or any such thing or it was just a broader comment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 10, 2025 / 1:30PM, TCS.NS - Q1 2026 Tata Consultancy Services Ltd Earnings Call

Question: Nitin Padmanabhan - Investec Bank (UK) Plc - Analyst : So just to understand, on a sequential basis, last quarter versus this quarter, would you characterize that the demand is actually at least from an environment perspective has got worse or it's the same for BFSI specifically and across the board as well?

Question: Nitin Padmanabhan - Investec Bank (UK) Plc - Analyst : But just from a pure -- because there is a dichotomy, right? Our deal wins over the last three quarters, including this one has been pretty decent actually. On one hand, the deal wins are decent. You seem to have a good pipeline, but on the other hand, we seem to be seeing maybe the rescoping and the negative prices on demand like we saw this quarter. So from that perspective, now what exactly -- how would you sort of explain this because people seem to be signing but they don't seem to be executing.

Question: Nitin Padmanabhan - Investec Bank (UK) Plc - Analyst : Just one last clarification from my end. For the -- you're actually currently assuming that the international business should be better in the following quarter and BSNL, it will take time until the POs come through for the actual execution to take place. Those two are a fair understanding?

Question: Nitin Padmanabhan - Investec Bank (UK) Plc - Analyst : Awaiting --

Question: Nitin Padmanabhan - Investec Bank (UK) Plc - Analyst : All the very best.

Question: Abhishek Gupta - Axis Mutual Fund - Analyst : Some are mostly the question is like on the North America side. If I take the last 12 quarter CAGR, which seems to be kind of flat to slightly negative. So North America being now one of the biggest markets, like where are we losing in this market and why is it not growing in absolute basis for us?

Question: Abhishek Gupta - Axis Mutual Fund - Analyst : And the lastly from my side is like if I look at your clients metrics, there seems to be two clients have -- in size has gone down from $100 million buckets. So that's -- is it a concerning point for as an investor or how do you look at the metric? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 10, 2025 / 1:30PM, TCS.NS - Q1 2026 Tata Consultancy Services Ltd Earnings Call

Question: Gaurav Rateria - Morgan Stanley - Analyst : My first question is trying to understand the investments that we talked about on creating capacity as well as on building a talent pool. Is there some specific hiring going on that is upfronted in the cost, and that is why the employee cost in absolute terms is up by $150 million while the number of employees have not increased significantly? Just trying to understand why there is a big jump in employee costs in the last two quarters whereas our international revenues have largely remained flat.

Question: Gaurav Rateria - Morgan Stanley - Analyst : My second question is on the conversations that we are having at the time of renewal. Have you seen more conversations around infusing the generative AI technology on the renewals and where would we be in our journey of taking this technology to our top 100 clients? Let's say have we already reached out to our top 100 clients and trying to proactively use this technology and include that in all our existing work package? Just trying to understand where are we in the journey.

Question: Gaurav Rateria - Morgan Stanley - Analyst : Last question, Krithi, on agentic AI solution. How are the contracts structured with the clients? Is it largely in the form of fixed price projects or is it also being sold as some license fee? Just trying to understand how are we trying to monetize our solutions around the agentic AI.