Tata Consultancy Services Ltd Q2 2026 Earnings Call Transcript

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

Question: Yogesh Aggarwal - HSBC Securities (USA) Inc - Analyst : Krithi, a couple of questions. Firstly, the heightened investments in AI are very welcome change. My question was, can you provide more clarity on the CapEx required? Because 1 gigawatt seems to be a very, very big investment. I mean global references are almost $20 billion of investment. So what is the time period, what is the kind of CapEx? And you said it is sovereign. So what does it mean in terms of the clientele -- would you be selling into your traditional clients or mostly in India? So a little more clarity would be very helpful.

Question: Yogesh Aggarwal - HSBC Securities (USA) Inc - Analyst : Right. Right. Okay. Okay. Just secondly, on the growth, you said the demand environment hasn't changed and the macro uncertainties are the key reason. So the current while the quarter is -- has been a little bit of a beat, the current growth rates have not been impacted by deflation on STLC by AI, you think that's not a factor. It's all macro?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : And a follow-up to what Yogesh has asked. So on this AI data center move, currently, do we have any guide with any of the, let's say, large consortium players like a Stargate or any of the deep tech players, either for bringing in more equity investments or for being our tenants once this is set up in the study state? And any broad indications on the revenue per megawatt you're looking at and the EBITDA margins and the IRR you are expecting on this data center investment?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : Fair enough, sir. And just to get to understand the operating model right. Did you say that will provide it on a cloud service provider basis or a coloration basis or just on a managed services basis. So in the kind of --

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : Okay. It will be on a co-location basis.

Question: Ankur Rudra - JPMorgan Chase & Co - Analyst : I just wanted to understand on this AI transformation you're doing, what does it entail in terms of existing client engagements? Do you have a sense of potential productivity gains or any kind of change in scope from a deflation or inflation perspective on your existing services as you transform?

Question: Ankur Rudra - JPMorgan Chase & Co - Analyst : Got it. Understood. I just want to clarify a couple of things. One, was there any headwind on the client this quarter, which we had a cybersecurity incident in terms of your revenues and margins? And also, second clarification was if the redundancy charge we took this time, given 1% was impacted, should we expect something solar in future quarters also?

Question: Ravi Menon - Macquarie Group Ltd - Analyst : Congrats on a really broad-based good. (inaudible) on the data under investment, again, what really prompted this? Is way unlike, I'd say, our approach so far within asset light.

Question: Ravi Menon - Macquarie Group Ltd - Analyst : Second question on the productivity improvements that you're seeing in AI. I get it. So if I understand correctly, the primary benefit of Gen AI is in the -- on the implication development from scratch, right? And that's a relatively actually a small part of the overall market that we play in. because what we do is primarily IT outsourcing, which is application maintenance and info maintenance, things like that, right? So would that be right that those activities we already have Level 1 support more or less automated. So not so to the existing book of business, should we -- how should we think about the impact of AI?

Question: Ravi Menon - Macquarie Group Ltd - Analyst : And if I recall right, you already announced a North American bank that's doing a complete mainframe organization using AI right now.

Question: Gaurav Rateria - Morgan Stanley - Analyst : My first question is around the investment in the new subsidiary on data center. Should we look at this investment as a stand-alone new business you need on providing co-location services? Or should we think about having a very thick synergy with your existing portfolio of services using this asset intensive has certain intensive business to build some services on top of it? 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 09, 2025 / 1:30PM, TCS.NS - Q2 2026 Tata Consultancy Services Ltd Earnings Call

Question: Gaurav Rateria - Morgan Stanley - Analyst : Got it. My second question is on the interplay between humans and AI that you talked about. How is it going to change the delivery model and the billing models? Would -- do you think that will incrementally move away from effort-based business model to outcome-based business models. And that is how the business should evolve and there should be more nonlinearity in the business going forward?

Question: Gaurav Rateria - Morgan Stanley - Analyst : Okay. My last question is that should we evaluate or should we consider this new adjacency as a completely different business with respect to the return ratio profile given that right now, we are very asset-light business and having a very different return ratio profile. Just trying to understand like how should we think about from a medium-term perspective of the company.

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : My first question was a clarification to the statement which you made that intends to become world's largest AI-led technology services company. How are you defining that as the largest AI-led technology company, which metric you are targeting at?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : Got it. My second question was on margins. So we have seen sequential improvement now the way hike is behind you and pyramid rationalization also will start kicking in. And going by your comment, your second half growth should better than first half. So for the rest of the year, is it fair to expect the margin should continue to see an expansion? 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 09, 2025 / 1:30PM, TCS.NS - Q2 2026 Tata Consultancy Services Ltd Earnings Call

Question: Nitin Padmanabhan - Investec Bank PLC - Analyst : Just a couple of questions. So one is, in the last quarter, on the deal, well, we have had very good deals on a consistent basis. You had alluded to three points that were not leading to better revenue conversion. One of them being projects starting at a lower pace and the other one being some projects being passed. How is that sort of evolving at the moment?

Question: Nitin Padmanabhan - Investec Bank PLC - Analyst : Sure. So incrementally, we should see better accretion. At this growth should be in the positive territory here on and you have alluded to that --

Question: Nitin Padmanabhan - Investec Bank PLC - Analyst : Correct. Any incremental update on, let's say, BFSI or consumer and Europe, I think last quarter, you were a little tepid from a commentary on those three. So just wanted to have thoughts there.

Question: Nitin Padmanabhan - Investec Bank PLC - Analyst : Got it. And on the data center CapEx maybe roughly based on what you said, it's maybe around $6.5 billion over a seven-year period. From a cadence perspective, how should we think about it with the early part of the seven years versus the later part? And would all this CapEx be -- you did mention partners. So would it be partially by partners and partially by us. Just a clarification on both.

Question: Nitin Padmanabhan - Investec Bank PLC - Analyst : Uniform.

Question: Nitin Padmanabhan - Investec Bank PLC - Analyst : Got it. And just one last one, if I may. Any color on the kind of deals in terms of sizing? Are you seeing a return of smaller deals or discretionary, any improvements there that you have seen during the quarter or directionally?

Question: Abhishek Kumar - JM Financial Institutional Securities Pvt Ltd - Analyst : Two quick questions about the cybersecurity instance. Just wanted to check if the issue has now been resolved and the projects you said which couldn't start, have they now started resuming? That's the first question. 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 09, 2025 / 1:30PM, TCS.NS - Q2 2026 Tata Consultancy Services Ltd Earnings Call

Question: Abhishek Kumar - JM Financial Institutional Securities Pvt Ltd - Analyst : Great. That's good to hear. Second, near term, especially 3Q, any early indication of how furloughs are looking this year compared to previous years. Generally, we have seen that in a weak demand environment for those tend to be longer. Any such signs at this stage?

Question: Vibhor Singhal - Nuvama Equities - Analyst : So just once again, on the AI data center investment. Given that you mentioned that it's going to be more like a sovereign data center and given the GDPR regulations across the world, is it fair to say that this will have limited synergies with our existing clients and most of the clients that we would be deploying in this data center will be more of India based and that decay would be looking for any synergies at all from our current --

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. Got it. And you mentioned that we've -- I mean, we've basically gone ahead with this as for the demand commitments and the annuity commitments and different. So we already -- I would assume we would have already have conversations with --

Question: Vibhor Singhal - Nuvama Equities - Analyst : So are there any MoUs that we have signed or any early connections that we have got into potential clients? Or would that be a -- 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 09, 2025 / 1:30PM, TCS.NS - Q2 2026 Tata Consultancy Services Ltd Earnings Call

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. Got it. Just one last question from my side. In terms of the revenue this quarter, we saw a sharp jump in the sale of equipment and software licenses revenue, almost more than half of the incremental revenue in this quarter came from that just quarterly specifically? Or do you think there could be a trend going forward as well?

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. So I mean it's expected to remain in the same range as it has been?

Question: Rishi Jhunjhunwala - IIFL Finance Ltd - Analyst : Yes. Sir, just talking a little bit more on that AI investment. A couple of reasons that you provide was that the demand in this space is very high and provides a new stream of annuity revenues. But outside of that, does it get focus in any kind of space advantage versus our peers if we are not doing this investment or does it put us at an advantage versus other peers on the global revenues that we earn here if at all. it's not --

Question: Rishi Jhunjhunwala - IIFL Finance Ltd - Analyst : Yes. So I was saying that if that is not the case, then I mean if you look at the overall technology spending landscape, then there would be a lot of pockets around software and solutions where those kind of investments probably would have been more synergistic to us. 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 09, 2025 / 1:30PM, TCS.NS - Q2 2026 Tata Consultancy Services Ltd Earnings Call

Question: Rishi Jhunjhunwala - IIFL Finance Ltd - Analyst : Understood. And second question is, I think in the opening remarks, you noted that why we have done this one acquisition, there seems to be some focus around try and do more acquisitions as well. I guess this is something we've done after almost 10 years, so is there -- should we assume that our acquisition intensity may also potentially go up in the coming years? And how does that change our capital payout policy, if at all?