Tata Consultancy Services Ltd Q3 2025 Earnings Call Transcript

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

Question: Yogesh Aggarwal - HSBC Securities and Capital Markets India Private Limited - Analyst : Hi, thank you. First of all, Happy New year to you all. Two questions. Kriti, good to see deal wins improving, but I was just curious, even in FY24, deal wins were very strong, but '25 growth, I think has not lived up to expectations. So do you think this time around the color of deal wins are different, and hence the conversion could be a lot more favorable?

Question: Yogesh Aggarwal - HSBC Securities and Capital Markets India Private Limited - Analyst : Okay. Okay. Just on a separate kind of related note, Kriti, so headcount declined again, and you sound positive for this year, and this is despite the BSNL headwind. So why is the head count declining or do you think the growth is more back-end loaded, and then during the year, you'll be able to hire people?

Question: Yogesh Aggarwal - HSBC Securities and Capital Markets India Private Limited - Analyst : Got it. Okay. Thank you so much. Thank you.

Question: Ravi Menon - Macquarie - Analyst : Hi. Thank you for the opportunity and Happy New Year to the management. What (inaudible) this is the best quarter for deal wins in the third quarter. I think ever since you started disclosing this number. So did we benefit a bit from any slippage of the deals, I mean, deals that were waiting to be (inaudible) on that we saw a bunch of them get decided maybe up to November or December? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Ravi Menon - Macquarie - Analyst : And you also said that there were no mega deals in this quarter. How is the mega deal pipeline looking now?

Question: Ravi Menon - Macquarie - Analyst : All right. Thank you and BFSI in North America, could you talk a bit about how that is QoQ on a constant currency basis?

Question: Ravi Menon - Macquarie - Analyst : Thanks so much and best of luck.

Question: Sandeep Shah - Equirus Securities - Analyst : Yeah, thanks for the opportunity. Kriti, just wanted to understand that the 3Q growth when you entered versus what has come is as per our initial expectation because out of the verticals outside emerging markets or growth markets and to some extent, consumer, all other verticals have declined in a constant currency Q on Q? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. And Kriti, if I look at last four quarters growth in international markets, outside India, has been really sluggish with deal wins picking up. Do you believe fourth quarter international market may help us to compensate the impact of BSNL gap which may come in the fourth quarter?

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. Okay. And just coming to margins, just wanted to understand, last time we said we have an aspiration to reach to 26% by Q4. And now furloughs won't be there, rupee depreciation may help. In that scenario, do you believe this aspiration could be realistic or still an aspiration to reach by Q4?

Question: Sandeep Shah - Equirus Securities - Analyst : Just last follow-up on this. Just wanted to understand the likely decline in BSNL, that could be also a big margin lever for the fourth quarter?

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. Thanks and all the best. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Ankur Rudra - JPMorgan - Analyst : Thank you. Hi. So the first question is on you mentioned there are early signs of revival in some of the verticals you highlighted. Could you maybe elaborate what is the nature of these signs, at least basically the nature of the deals you've signed this quarter or the nature of pipeline, client conversation intent. Just some more color would help.

Question: Ankur Rudra - JPMorgan - Analyst : Thank you so much. I think last quarter, you had said Kriti that the deal cycles were extending. So basically the next -- in the following three months, it is already recovered, is that how we should take this?

Question: Ankur Rudra - JPMorgan - Analyst : Okay, I appreciate it. I just want to probe a bit more on the AI work, you mentioned a lot of Agentic AI coming your way. What's the impact of this on effort needed for projects of different types? So for example, does this mean that there will be more work on software engineering, but some volume pressures on legacy modernization and ops. In addition to that, if you can highlight if there's been any loss of volume due to Agentic AI or SLMs on your any of the large projects or customers? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Ankur Rudra - JPMorgan - Analyst : Okay, I appreciate the color. Thank you so much, and wish you best of luck. Thank you.

Question: Nitin Padmanabhan - Investec - Analyst : Yeah. Hi, good evening and wishing you a very Happy New Year. Just a couple from my end. So one is, you mentioned that BSNL (inaudible) is complete. So how should we think about it? Do you think the net reduction in revenue there should happen in the following quarter or it will happen in the next fiscal year? So that's the first one. The second one is that considering we had very strong deal wins this quarter and there is no mega deal and decision cycles are also improving, does that mean that the revenue conversion will also be much quicker, considering these are relatively smaller and more discretionary in nature, and that should aid near-term performance. And finally, I think you also mentioned that you were looking at projects that could refill the gap from BSNL? Just your thoughts on, if there's anything specific out there that sort of fills that will be helpful. Thank you.

Question: Nitin Padmanabhan - Investec - Analyst : Sure, that's helpful. Just one clarification. I think on the press conference, you made a comment that BSNL could come off slowly or sharply, I was just wondering what you meant by that?

Question: Nitin Padmanabhan - Investec - Analyst : Got it, got it. Fair enough. Thank you so much, and all the very best.

Question: Sudhir Guntupalli - Kotak Mahindra AMC - Analyst : Yeah. Thanks for the opportunity and Happy New Year. You seem to be sounding much more confident on the broader demand environment than what we have noticed in the last two quarters. And you are seeing CY25 should be better than CY24. So given that BSNL deal will ramp down over CY25 which is a big headwind, and despite that, we are expecting a better year in CY25 or CY24. So if we reverse engineer the math, are you sort of alluding to a double digit kind of revenue growth expectation in the core markets in calendar '25?

Question: Sudhir Guntupalli - Kotak Mahindra AMC - Analyst : Okay. So what I'm trying to understand is I think India business, we had seen close to $1 billion incremental revenue in calendar '24 over '23 and that should taper off or unwind in calendar '25, which means the core market should at least do the heavy lifting of going up to double digit and that's when you can be (multiple speakers) -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Sudhir Guntupalli - Kotak Mahindra AMC - Analyst : Thank you so much, sir. All the very best.

Question: Vibhor Singhal - Nuvama Equities - Analyst : Yeah, hi. Thanks for taking my question again. Just to delve a bit on the stationary part the comment that you mentioned, one of the things that had been plaguing us and the industry over the past two years was the fishery part of many of these have been put on hold from the client side. So are we seeing some basically recovery in that as well in terms of clients (inaudible) looking to put that back on the annual along with, of course, the normal recovery that you mentioned in your comments and explanations thereafter.

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. Got it. And specifically in the BFSI segment, if I could just dwell a bit, I think this is a segment which has historically been one of the you mentioned that they are also the ones which are also looking at wide scale adoption. So any buffers that you believe that we are also making in terms of the legacy code modernization, the opportunity that we kind of showcase in our Analyst Day as well. I mean, any -- what should I say, any POCs or projects which have kind of gone to an incremental advanced stage on that front that we can talk about?

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. Got it. Great. Just one last question on the BSNL part. We had some of our earlier remarks we had mentioned that there might be some extension to the BSNL deal in the magnitude that it is at this point of time. So does the TCV for this quarter include any amount of contribution of extension of the project or it is completely non BSNL TCV that we have? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Vibhor Singhal - Nuvama Equities - Analyst : Are we expecting any extensions sir, in the next fiscal year or too early to fall or is it (inaudible)

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. Got it. Yes, sir, thank you so much for taking my questions and I wish you all the best.

Question: Rishi Jhunjhunwala - IIFL Institutional Equities - Analyst : Yeah, thank you for the opportunity. Just a couple of quick questions. Firstly, on this BSNL thing, right? So over the course of the entire project, which I guess is going to go on for in total six to eight quarters, eight quarters or so, just wanted to understand the overall project. What you know, the end profitability would eventually be that you would have envisaged if at all, there is I understand that was strategic in nature was giving you an entry into network services management and all that. But just from a project profitability perspective, just wanted to get some color on that.

Question: Vibhor Singhal - Nuvama Equities - Analyst : Okay. All right. Thank you so much, sir. All the best.

Question: Manik Taneja - Axis Capital - Analyst : My question on BSNL has been answered. I just wanted to understand just (inaudible) in the past your remarks about an elongation in terms of deal tenures. Are we seeing some normalcy return there? That's was the data-keeping question. And the second question was, we've been sharing from some of the industry folks about GenAI giving the managed services players option to move to a software pricing model. It would be great to understand your viewpoint on this.

Question: Manik Taneja - Axis Capital - Analyst : But do you massage such a scenario playing out over the next few years?

Question: Manik Taneja - Axis Capital - Analyst : Sure. Thank you (inaudible) All the best for the future. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2025 / 1:30PM, TCS.NS - Q3 2025 Tata Consultancy Services Ltd Earnings Call

Question: Abhishek Kumar - JM Financial - Analyst : Yeah. Hi, good evening. Thanks for taking my question. Quickly, just wanted to pick up, one remark you made earlier that furloughs could recover to some extent in next quarter. I just wondering, if you believe there could be some spillover of furloughs into Q1 like what we saw last year?

Question: Abhishek Kumar - JM Financial - Analyst : Sure, but nothing unusual, a similar trend as what we have seen in previous years?

Question: Abhishek Kumar - JM Financial - Analyst : Okay. And second question is, you said client budgets are likely to be flat with some positive bias. At the same time, we are hopeful of discretionary spending picking up. We just trying to reconcile the two. Do you think there is still reprioritization of budgets where the spend will be funded by efficiency gain somewhere else? Or you think budgets could be revised as we go through the year? Thank you.

Question: Abhishek Kumar - JM Financial - Analyst : Sure. Thank you and good luck.

Question: Sumeet Jain - CLSA - Analyst : Yeah. Hi. Thanks for the opportunity and happy new year to entire management. Kriti, I think you mentioned that you are seeing early signs of revival and discretionary spend across various verticals due to political uncertainty being behind in US. But if you look at, there is still a lot of uncertainty around potential increase in inflation due to trade tariffs or uncertain government policies or increase in the US interest rates, which we are seeing in the current US bond yields. So how stable is this revival the discretionary spend you're expecting probably over the next one to two quarters and entire CY25?

Question: Sumeet Jain - CLSA - Analyst : Got it that's helpful. And maybe can you also comment around health care licenses and manufacturing verticals? I was not very clear. Are you saying that they have already bottomed out and they will start seeing growth from next quarter onwards or are you still waiting for some clarity there?

Question: Sumeet Jain - CLSA - Analyst : Got it. That's very helpful. Thanks for the opportunity again and all the best.

Question: Gaurav Rateria - Morgan Stanley - Analyst : Hi, thanks for taking my question and wishing everyone a very happy new year. I have two questions. The first, where are we in our journey of infusing AI into various statement of work that we do with the clients? I'm sure like we run thousands of different projects with the clients, and there will be an initiative to infuse AI. So where are we in that journey? And my second question is that, Kriti, you made a comment that discretionary work comes then automatically, the revenue realization is faster. Would that also mean better revenue productivity and could that also be a lever for margins? Thank you.

Question: Gaurav Rateria - Morgan Stanley - Analyst : Thank you very much.

Question: Abhishek Pathak - Motilal Oswal - Analyst : Yeah, hi. Thank you for the opportunity. Kriti, just a question on your point earlier around retail as about seeing some recovery. I just wanted (technical difficulty) the drivers behind that and the outlook for that, let's say, for CY25? And the other thing, likewise on technology and hi-tech, what's your view on the hi-tech vertical? Do you think a lot of the CapEx spend around GenAI and GPUs is all behind then, can we expect the US big tech companies to maybe shift their focus on services spends for the next year? Thank you.

Question: Abhishek Pathak - Motilal Oswal - Analyst : Great. Thank you so much. All the best.

Question: Sandeep Shah - Equirus Securities - Analyst : Yeah, thanks for the follow up opportunity. Just to get a clarity on BSNL and sorry to harp on the same. The first phase which largely involved 4G. The belief is that TCV is close to $1 billion. And now you are saying the tapering off could extend till 1Q or 2Q of FY26. So is it fair to assume the deal TCV is higher than $1 billion in the first phase?

Question: Sandeep Shah - Equirus Securities - Analyst : $1 billion.

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. Fair enough. And just last thing pretty is it fair to assume you are expecting the recovery in CY25 most of the verticals. But auto and arrow may lag in terms of the recovery or how do you like to see which verticals were like -- there would be a lag in terms of a recovery in discretionary spend?

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. Thanks. Thanks and all the best.