Tata Consultancy Services Ltd Q4 2025 Earnings Call Transcript

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

Question: Yogesh Aggarwal - HSBC Securities - Analyst : So just a couple of questions. Firstly, Samir on the media conference, you mentioned some tactical investments, which is why the margins were a bit weak this quarter. Can you elaborate a little bit?

Question: Yogesh Aggarwal - HSBC Securities - Analyst : Okay. So just wondering, Samir, what drove it because the quarter growth was still slow and you guys are not even certain about the wage hikes for next year when will they come into effect. So what actually -- what was the trigger behind these promotions that wasn't planned earlier?

Question: Yogesh Aggarwal - HSBC Securities - Analyst : Okay. On the other side, Krithi, it's hard to be optimistic in the current environment. But usually in the past, after every crisis, there has been a tailwind for IT industry as clients invest in various newer areas. So in your conversations, once that settles down on the tariff tantrums, do you think there are any new areas which could open up for the industry at least for the next one to two years?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : Just a couple of questions. Firstly, you are still talking about the expectation of FY26 being better than FY25. This is despite an 8% decline in the full year bookings and some macro deterioration, which we called out over the last four to five weeks. So what is giving you this confidence? And are you betting on a major improvement in macro side going forward for this equation of FY26 to be better than FY25?

Question: Sudheer Guntupalli - Kotak Mahindra AMC - Analyst : Fair enough, sir. And the second question is the order booking this quarter has been very strong on a sequential basis. And you're saying there is no mega deal within this. Any color on how the mix between renewals and new deals have played out vis-a-vis December quarter? Is there any major shift towards new or towards renewals?

Question: Ravi Menon - Macquarie - Analyst : You had talked about how last quarter, I think that the deal durations are a little lower, and that means the TCV will convert to revenue faster. So should we think about the FY25 deal wins in that context that although it's nearly 8% lower year on year because the durations are lower, the ACV number is higher? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 10, 2025 / 1:30PM, TCS.NS - Q4 2025 Tata Consultancy Services Ltd Earnings Call

Question: Ravi Menon - Macquarie - Analyst : So then the promotion cycle seems to be something that's unusual. And I think that along with the wage hike seems to be conflicting signals. Could you explain a bit about of thinking? I mean, were these promotions that should have ideally been done last April and didn't happen, so it's almost a delay? How should we think about it?

Question: Ravi Menon - Macquarie - Analyst : And one last one, if I may. Did you do a lot of higher-end lateral hires this quarter? Would that also be part of the reason why employee costs are up?

Question: Ravi Menon - Macquarie - Analyst : It's just primarily campus hire and not really laterals. Is that correct?

Question: Ankur Rudra - J.P. Morgan - Analyst : Just to start with, can you clarify your comment about fiscal '26 better than fiscal '25. Is that for the whole business? Or is that only for 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. APRIL 10, 2025 / 1:30PM, TCS.NS - Q4 2025 Tata Consultancy Services Ltd Earnings Call

Question: Ankur Rudra - J.P. Morgan - Analyst : Okay. I just wanted to ask a bit about the wage increase. I think you've answered it in multiple ways, but just a clarification. In the last cycle, when were such promotions given? Is it along with the wage hike? Is it somewhere else? Is it sort of -- are you anniversarying such promotions?

Question: Ankur Rudra - J.P. Morgan - Analyst : Okay. Understood. So historically, this may be the same time you've taken exist, maybe it's more visible this time versus the other periods.

Question: Ankur Rudra - J.P. Morgan - Analyst : Okay, understood. Just a question on the AI side. You mentioned about AI for IT and AI for business. On the AI for IT side, is there any kind of deflation you see in your existing order book if you start to infuse AI proactively in existing projects? That's part one. And part two, on AI for business, is this a net new opportunity in case innovation is really being funded by savings on the legacy side, like you were mentioning in your prepared remarks? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 10, 2025 / 1:30PM, TCS.NS - Q4 2025 Tata Consultancy Services Ltd Earnings Call

Question: Ankur Rudra - J.P. Morgan - Analyst : But I understood from your comment that this was being -- I mean, at a budget level, it has been funded by saving on the legacy side. So you're saying that was --

Question: Ankur Rudra - J.P. Morgan - Analyst : I think on the budget side, you mentioned that customers are funding AI innovation by saving cost saving initiatives. So is that what you meant?

Question: Apurva Prasad - Franklin Templeton - Analyst : Krithi, I'm trying to understand the current uncertainty that you mentioned in the business environment. So the variability of, let's say, 2 percentage points from the beginning of the quarter expectation to where you finally ended. Is that largely a function of how March played out because the decline in the large program would have been fairly anticipated?

Question: Apurva Prasad - Franklin Templeton - Analyst : Okay. And you touched upon this earlier, but how do you see the net impact of AI for business versus AI for IT playing out currently in the business and then your reckoning over the next few years because it's very clearly deflationary in the current service portfolio and also because there seems to be more cost optimization and budgets are flat. So the net impact between the two over the medium term in your reckoning.

Question: Apurva Prasad - Franklin Templeton - Analyst : Okay. And --

Question: Apurva Prasad - Franklin Templeton - Analyst : Yeah, you did indicate the pipeline is higher, but not quantify that, but I'll take that. And just finally, for Samir, on margins, if you're indicating that international markets are going to be better, '26 versus '25 and, let's say, lower impact of software license and equipment cost. What are the headwinds that you're seeing for '26 margins?

Question: Vibhor Singhal - Nuvama Equities - Analyst : Krithi, just a little bit of more color on the overall environment that we are seeing at this point of time. So at this point of time, is it fair to say that the uncertainty that we are seeing or the delayed decision making that you talked about is actually present across the segments? Or is it more prevalent in, let's say, verticals, which are directly impacted by the tariff implementations like let's say, manufacturing or retail? Any color on the vertical-wise conversations, that would be really helpful.

Question: Vibhor Singhal - Nuvama Equities - Analyst : And any color on high-tech segment also. I mean we have seen a lot of the hyperscalers and companies talking about softness. Anything on that color on that side?

Question: Vibhor Singhal - Nuvama Equities - Analyst : That's really helpful. Just my last question for Samir. Samir, you've talked about the headwinds and tailwinds that you're looking at for the margins next year. But as Krithi has mentioned that we are looking for the developed markets at least to grow higher than, let's say, FY25. If that situation prevails, should we expect margins in FY26 to be also better than what FY25 margins were?

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. That's really helpful. Just one last question, if I may squeeze in. I mean, I know we've talked about our business de-risking ourselves from the dependence on H1B visa and all. But any changes to that you see at this point of time that with the strong anti-immigration stand that our government seems to be approaching? Do we need to make any changes or any kind of different hiring that you envisage over the coming quarters? Or do you think it's going to be BAU for us on that front? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 10, 2025 / 1:30PM, TCS.NS - Q4 2025 Tata Consultancy Services Ltd Earnings Call

Question: Gaurav Rateria - Morgan Stanley - Analyst : First question is with respect to a comment that you made in your press release that over a third of your client engagements use AI, Gen AI for accelerated project outcomes and high quality. Just trying to understand, is it referring to the overall projects that you work with your clients in the entire business? One third of your overall projects have some or other element of AI from a software engineering perspective. Any color on that will be helpful.

Question: Gaurav Rateria - Morgan Stanley - Analyst : Got it. My second question is on your strategy for talent for building AI for business. Have you seen any change in your mix of hiring, either from campus or laterals which kind of changes the quality versus quantity from a futuristic perspective? And would that also mean that there have been some upfronting of investments in the P&L, which will accrue to you in terms of greater demand in future?

Question: Gaurav Rateria - Morgan Stanley - Analyst : Okay. And lastly, Krithi, getting into the 1Q, how would you see your visibility for a quarter at least? And how do you compare that to the last year when you were getting into 1Q? Is it similar, better, worse? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 10, 2025 / 1:30PM, TCS.NS - Q4 2025 Tata Consultancy Services Ltd Earnings Call

Question: Kumar Rakesh - BNP Paribas - Analyst : My first question was around margin. So you spoke about that there is a 60 basis point impact on onetime -- sorry, on marketing exercises. Is that a onetime in nature? Or will that be recurring going forward? And also the promotion spending, which you said that is the usual part of your planned program, so if you can give some understanding what it was last year during this quarter?

Question: Kumar Rakesh - BNP Paribas - Analyst : Understood. My second question was on the TCV, which has picked up over the last two quarters and that would be one of the areas which could be giving you confidence going into FY26. But can you give some color on what has changed between from first half to second half. Maybe some color on if what has been the mix, how the deal has used between these two periods?

Question: Kumar Rakesh - BNP Paribas - Analyst : Financial year, yes, yes. So [first half the TCV was between 8 billion and 8.5 billion].

Question: Kumar Rakesh - BNP Paribas - Analyst : So better execution and possibly better decision-making.

Question: Kumar Rakesh - BNP Paribas - Analyst : Understood. Going forward, at least in the first quarter, do you have reasonable confidence that this momentum should continue into next year?

Question: Kumar Rakesh - BNP Paribas - Analyst : So on the pipeline side, quarter on quarter, it has been steady or positive. That's fair to say.