Tata Consultancy Services Ltd Q2 2025 Earnings Call Transcript

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

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Thank you very much for taking my question. Just maybe a few questions, maybe starting with demand. It seems like this was a challenging quarter for the international business, slightly soft on our headline numbers and also signings. Could you maybe elaborate in terms of the nature of demand and environment, has it begun to perhaps deteriorate overall after a couple of promising quarters? And should one assume that the recovery perhaps it had pushed out a bit from here?

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Okay. Thank you, Krithi. And maybe just on financial services if you could dig a bit deeper and add some more color in terms of, which is the segments of the broader financial services portfolio where you're seeing strength. And I think you also mentioned when manufacturing, we're a bit concerned if you can elaborate on that one as well. Thank you.

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : I think there was some comment that manufacturing has begun to see some signs of weakness. I was just curious if you could add to that.

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Thank you so much. Just if I can squeeze in the last question on margins, clearly, there's been a lot of moving parts this time. Maybe the first part of the question would be if you could highlight the, I mean, the appear to be a bit of a margin trade off, we are going through at least on the CMD side perhaps because of one deal. Are they expecting any sort of synergies is the worst of that deal margin impact behind this, number one. Number two, overall, if I look at the segmental margins both on manufacturing and CMD, both are opposite directions, you know, significantly out of long term trends. How long will that last when we will see this coming back to long term trends? Thank you.

Question: Apurva Prasad - HDFC Securities Ltd - Analyst : Thanks for taking my question. As, first off deepest condolences from my side too. Krithi, just to tie in with your comments of improvement and discretionary and optimism going forward. How should we think of growth, visibility or acceleration beyond the current calendar, especially in absence of mega deals. If I look at bookings for the first half, TCV, it's down 20%. Of course with no mega deals that is compared to the comparable period earlier. So any comments on how is the pipeline around some of those mega deals and or the TCV and duration of what you've been booking

Question: Apurva Prasad - HDFC Securities Ltd - Analyst : Got that. And secondly, how much of the weakness this quarter relative to the previous quarter is sort of emblematic of macro versus the temporary client specific factors that you mentioned. How long is this expected to last?

Question: Apurva Prasad - HDFC Securities Ltd - Analyst : Got it. And just finally, how is the GenAI piping converting to bookings and the revenue, especially as one of your competitors is talked of numbers, which is not too different from our own pipeline. So if you could comment on that in terms of how integral it is becoming part of deals. And, just finally on margins, Samir how much of the long term growth strategy and growth markets. How should we think about margins from that point of view?

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Thanks for the opportunity and deepest condolences for TCS and Tata Group. Kriti, some bookkeeping question wanted to understand and reconcile. As you are saying, the BFSI has been showing signs of revival in the US and North America. But this quarter, the North America as a region has not shown a growth while Europe has shown a growth. So can you reconcile, is it fair to say, challenges in non-BFSI segment is bigger in North America?

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Okay. And just on the BSNL deal. One of the comments of CFO has been it's at a peak rate. So is it fair to assume BSNL deal revenue in the second half would be materially lower versus first half? And this could be a growth headwind in the second half on our control level.

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : So this would also be a margin tailwind in the fourth quarter, maybe third quarter could be again a difficult quarter in terms of showing up what trend on the margins?

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Okay. And the last question with the tax ruling change on the buyback. How are we looking at capital allocation? Are we still looking in terms of inclined towards buyback or we are more inclined towards dividends?

Question: Vibhor Singhal - Nuvama Group - Analyst : Hi, good evening. Thanks for taking my question. So, just to dwell a bit more on North America, if I look at strictly in terms of dollar revenue terms, we fell by almost $60 million in our North America revenue, almost half of it assuming came from the healthcare segment, which was almost $28 million. So which are the other verticals in which we saw, some kind of weakness in US specifically? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 10, 2024 / 1:30PM, TCS.NS - Q2 2025 Tata Consultancy Services Ltd Earnings Call And was that also of a similar nature like health care of client specific issue, which you expect to maybe recover in a couple of quarters? Or do you think there is a more structural issue to some shortfall in the revenue? Maybe like the telecom sector?

Question: Vibhor Singhal - Nuvama Group - Analyst : So by that count, are we sticking to the commentary that we mentioned last quarter? The retail sector has also possibly bottomed out for us. And next quarter onwards, we could see some green shoots in that sector as well.

Question: Vibhor Singhal - Nuvama Group - Analyst : Got it. Thank you so much. Just one last question from my side on the head count relation. I think another strong, another quarter of strong head count relation. So how to read into this going forward? I mean, are we looking at maybe it's not similar but still a positive head count relation in the coming quarters? Is that more related to the kind of growth demand environment that you are seeing or is it just a backfill of the negative number that we had for the past three to four quarters?

Question: Vibhor Singhal - Nuvama Group - Analyst : Got it. So on the lateral side, is it like we are focusing on specific technologies that we are into hiring? I know we kind of given a number that we trained so many people on GenAI, is that the area that you're looking to hire virtual people or is it more across the world? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 10, 2024 / 1:30PM, TCS.NS - Q2 2025 Tata Consultancy Services Ltd Earnings Call

Question: Kawaljeet Saluja - Kotak Securities Ltd - Analyst : Hi. Couple of questions actually from my side. One, Kriti is that how is the further situation going to be this year from the initial conversation with Life Science? Is it any different than what we have seen in earlier years?

Question: Kawaljeet Saluja - Kotak Securities Ltd - Analyst : The second question is on the BSNL deal. Now there are various estimate, I mean various sizes which are being discussed. I think your company announced a billion dollars in terms of deal size. I'm just trying. Whereas when I read the annual report, there was a specific mention of additional 20,000 sites, you know, which will be rolled out as part of deployment. So I'm just trying to understand, you know, the overall size of the scope of the deal and if it's a billion dollars, then I guess, you know, in the last four quarters itself, the [billion] would have reached around $750 million. So with that as a backdrop, you know, how do you end up with, let's say flattish deployment or rather another quarter of strong robust revenue from BSNL under December quarter?

Question: Kawaljeet Saluja - Kotak Securities Ltd - Analyst : On this specifically, when you look at the revenue dynamics, right? These large transformation contracts, the revenue profitability dynamics may not be synchronized. At least from the financials, when I look at the CMT vertical, you know the absolute [EBIT] has been flat, whereas the revenues have grown leading to an impression that, it's been no margin kind of a business, does this dynamic change, as the transformation program hits specific milestones here.

Question: Kawaljeet Saluja - Kotak Securities Ltd - Analyst : Fair enough. The last question that I had is for Krithi again, you mentioned client specific challenge. Actually, can you just elaborate what this client specific challenge would be? And did it have any margin impact?

Question: Kawaljeet Saluja - Kotak Securities Ltd - Analyst : But does that scope changes as you move all into the next year or is it just -- ?

Question: Kawaljeet Saluja - Kotak Securities Ltd - Analyst : That's clear. Final question. I don't know, if it was asked earlier, but I did hear about a specific instance of focus on growth market. All of us know that growth market may not be the most profitable one. So how do you intend to balance the aspiration of expanding into India or maybe some other actually India or some of the other regions in Asia Pacific and the profitability aspirations you have?

Question: Rishi Jhunjhunwala - IFL Securities - Analyst : Thanks for the opportunity. Just a couple of questions. Firstly, if you look at our SG&A expenses as percentage of revenue they are pretty much at an all-time low. And in the past four to five quarters, we have seen sequentially, even the absolute amount coming down. Just wanted to understand, is it more a reflection of, how things have slowed down in the past four-five quarters? And hence, you are trying to rationalize that or more a reflection of how the next three, four quarters might look like and you're kind of managing investments there.

Question: Rishi Jhunjhunwala - IFL Securities - Analyst : And just secondly, on deals, right? So last quarter, we had indicated that there were delays in deal closures and so possibly that could have reflected in better wins this quarter, there hasn't been any material uptake, but you mentioned INR7 billion to INR9 billion is a comfortable range in which you are operating. I just wanted to understand in order for our growth to accelerate to maybe high single digit or closer to double digit over the next 12, 18 months. Do you still need this number to go up substantially? Or the overall budgets might just reflect that even if it is not getting reflected in the TCP?

Question: Rishi Jhunjhunwala - IFL Securities - Analyst : Got it. But do you have mega deals in the pipeline which could put -- ? (multiple speakers)

Question: Ravi Menon - Macquarie Group - Analyst : Thank you for the opportunity. I wanted to touch upon one of the markets that you're really strong in that's Airline industry. You know, we had heard about how they want to go direct to consumer and I guess those plans have been put on hold as they struggled on the front. Do you see some of those kind of investments coming back?

Question: Ravi Menon - Macquarie Group - Analyst : And in manufacturing, we spoke of, were you talking about aerospace basically or any other segments?

Question: Ravi Menon - Macquarie Group - Analyst : Thank you so much. And one last question on the BSNL deal, I think if I understood correctly by next year, Q1 that's supposed to end. And is there a maintenance phase after that?

Question: Gaurav Rateria - Morgan Stanley India Co. Pvt Ltd. - Analyst : Hi, thanks for taking my question. First question for you, Krithi. You did talk about optimism around discretionary spend returning back. So apart from macro data points, what are you seeing either in your portfolio or client conversation or the pipeline that gives you more confidence around the return of discretionary over a period of time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 10, 2024 / 1:30PM, TCS.NS - Q2 2025 Tata Consultancy Services Ltd Earnings Call

Question: Gaurav Rateria - Morgan Stanley India Co. Pvt Ltd. - Analyst : Second question is on margins. I know that you did give us a bridge and that had a component of capacity building and infrastructure related investments that had some impact on the margins. Kind of coming back gradually, would you expect margins to return to the range that you talked about in the near term or will it be more like a medium term? Basically, you have levers around India business sort of tapering down on that contract which can lead to some margin expansion on top of it. Some capacity creation has happened that also kind of can lead to a margin expansion. So trying to understand 26% is more of a, you know, near term phenomena or more like a longer term margin aspiration one should think about? Thank you.

Question: Nitin Padmanabhan - Investec Capital Services (India) Pvt Ltd. - Analyst : Good evening. You mentioned that the deal tenure have sort of expanded? So is that in specific cases or is that a very broad based kind of phenomenon.

Question: Nitin Padmanabhan - Investec Capital Services (India) Pvt Ltd. - Analyst : And you mentioned that we had been, that we have seen this quarter in some cases, it could sort of stabilize in the next quarter and then possibly improve. I think that was more Life Sciences, but broadly, do you get the sense that in all the areas where you have seen headwinds in the current quarter, that's more or less peaked out and things can incrementally improve for those specific areas. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 10, 2024 / 1:30PM, TCS.NS - Q2 2025 Tata Consultancy Services Ltd Earnings Call

Question: Nitin Padmanabhan - Investec Capital Services (India) Pvt Ltd. - Analyst : And lastly, you mentioned that 86 sort of projects on GenAI have gone live compared to eight have gone into production compared to eight in the last quarter. -- What are the average sizes of these projects? Are they very large or -- ?

Question: Nitin Padmanabhan - Investec Capital Services (India) Pvt Ltd. - Analyst : Got it. Are you seeing any large AI projects where enterprises are sort of looking to build some sort of a broad you know, infrastructure or framework, where the entire orb could sort of use irrespective of the department, just the broad individual building block, which is enterprise wide.

Question: Nitin Padmanabhan - Investec Capital Services (India) Pvt Ltd. - Analyst : Got it. And in this, lastly, in such cases, how large would these programs be wherein the org try to do this?

Question: Nitin Padmanabhan - Investec Capital Services (India) Pvt Ltd. - Analyst : In the case where an enterprise seeks to create AI office broadly, typically, how large will these projects be? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 10, 2024 / 1:30PM, TCS.NS - Q2 2025 Tata Consultancy Services Ltd Earnings Call