Release Date: July 10, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Consultancy Services Ltd (BOM:532540, Financial) signed contracts worth $9.4 billion in Q1 FY26, marking a 13.2% increase year-on-year.
- The company reported a net margin of 20.1%, supported by higher other income and a lower effective tax rate.
- TCS continues to invest in emerging technologies, with 114,000 employees now skilled in AI.
- The company has a strong pipeline of deals across various industries and geographies, indicating robust future demand.
- TCS's strategic partnerships and innovative solutions, such as the collaboration with Jaguar Land Rover and Foxtel Group, highlight its capability to drive transformative projects.
Negative Points
- Revenue declined by 3.1% year-on-year in constant currency terms, reflecting challenges in converting signed deals into revenue.
- The company faced delays in decision-making and project starts, particularly in discretionary investments, due to global economic uncertainties.
- Operating margin stood at 24.5%, which is below the pre-BSNL deal levels, despite efforts to improve productivity and reduce costs.
- There is ongoing pressure on discretionary spending, impacting revenue growth in sectors like BFSI and consumer business.
- Attrition in IT services increased to 13.8%, indicating potential challenges in retaining talent amidst industry competition.
Q & A Highlights
Q: Apart from the BSNL deal, are there any other client-specific situations in any particular geography or vertical?
A: There is no client-specific situation apart from the BSNL deal.
Q: Are you still confident that FY26 will be better than FY25 at the overall company level?
A: We are confident that the international market will perform better in FY26 than FY25. However, achieving overall growth remains a high bar, but we are working towards it.
Q: What are the risks to the September quarter given the decision-making delays and project pauses?
A: The delays have been largely factored into our numbers, but there may be some residual effects in Q2. If there are no further delays, Q2 should be better than Q1.
Q: Why is the margin lower than before the BSNL deal, despite lower SG&A expenses and improved productivity?
A: The margin is 25 basis points down year-on-year due to continued investments in people and capacity. The demand contraction led to carrying excess capacity, which should help with future demand.
Q: Is there any pricing pressure or demand for productivity pass-throughs due to the current demand environment?
A: Pricing has been stable overall, but there are instances where large deals demand productivity improvements. This is not industry-specific but depends on the size and tenure of the deal.
Q: How is the pipeline replenishment progressing given the deferrals and delays?
A: The pipeline remains strong across multiple industry verticals and geographies. We have been able to replenish all the deal closures that happened in Q1.
Q: How are the contracts for agentic AI solutions structured with clients?
A: Contracts vary; some are based on outcomes, while others start as T&M (Time and Materials) and may move to fixed price as the technology evolves.
Q: Why are employee costs high despite not much increase in employee numbers?
A: The increase in employee costs is due to higher QE (Quarterly Earnings) and tactical interventions like promotions, not just hiring.
Q: Are there any positive signs from bank customers in BFSI despite the slight decline in Q-o-Q?
A: The decline is mainly from Europe due to the completion of a large engagement. North America and UK BFSI sectors are continuing on a growth path.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
