Tata Consultancy Services Ltd

NSE:TCS

Q1-2026 Earnings Call

[Kritika Saxena, executive]

Hello, and a very warm welcome to everyone joining us. I'm Kritika Saxena. Welcome to the First Quarter FY '26 Earnings Press Conference of Tata Consultancy Services.

As always, we'll start with introducing the management. We have with us our MD and CEO, K. Krithivasan. Our Chief Operating Officer, Aarthi Subramanian. Good evening Samir Seksaria, our CFO; and of course, Milind Lakkad, our CHRO. As always, we're going to start with the CEO address, and then we'll throw the floor open for questions. Krithi, the floor is yours.

[K. Krithivasan, executive]

Thank you, Kritika. Good evening, everyone. As you all know, Aarthi has joined us as President and COO, and this will be her first media interaction with all of you. Prior to this role, she was the Group Chief Digital Officer at Tata Sons, and she was leading group's digital technology and innovation agenda across diverse portfolios of industries in Tata Group. Aarthi, welcome.

So coming back to the -- coming to our performance. During our last press meet, we had spoken about delays in decision-making and project starts with respect to discretionary investments. This trend has continued and intensified to some extent in this quarter. And global businesses were disrupted due to conflicts, economic uncertainty and supply chain issues. In this backdrop, our quarterly revenue declined by 3.1% year-on-year and by 3.3% on a sequential basis.

Our rupee revenue grew by 1.3% year-on-year to reach INR 63,437 crores. Our operating margin stands at 24.5%, representing an expansion of 30 basis points over Q4 of FY '25. This translates to INR 15,514 crores of operating profit. Our net margin for the quarter has come in at 20.1% translating to INR 12,760 crores.

Consequently, our EPS reached INR 35.27 per share. Cash from operations was at INR 12,804 crores, representing a strong conversion at 100.3% of net profit. On a sequential basis, North America was flat at about 0.1% growth, while U.K. and Europe declined by minus 0.3% and minus 3.1%, respectively. Amongst new growth markets, Asia Pacific remained flat, while Middle East, Africa and Latin America declined sequentially. India declined by 32.6% in this quarter.

Among the verticals on a sequential basis, Technology & Services grew by 1.1%, and manufacturing grew marginally by 0.2%, BFSI declined by 0.5%. Consumer business declined by 2.2%. Life Sciences and Health care declined by 1.2%. Communication and media declined by 3.1%, and ERU declined by 0.6%. TCS Banks and BFSI products and platform continued their growth momentum.

The number of customers from whom we make more than [ $100 million ] declined by 1 to 62 customers on a year-on-year basis. However, we saw a good addition of clients in the $10 million, $5 million and $1 million revenue bands. Our customer base of 1 million stands at INR 1,336 crore, an increase of 26% over last year. We had a strong order book closure again this year. Our order book for the quarter stands at $9.4 billion, up by 13.2% on a year-on-year basis.

North America TCV came in at $4.4 billion. BFSI at $2.5 billion in consumer business at $1.6 billion. Most geographies and business groups had strong order book closures. By the end of Q1, our net employee count stood at 613,069, a net increase of 5,090 associates, since Q4 of FY '25. Our IT services attrition stood at 13.8%.

In this quarter, we also saw new service lines delivering growth, essentially our amongst our services, data, TCS Interactive and cybersecurity led the growth. On AI, clients are accelerating their focus to scaling AI across enterprise. We are increasing our investments across the AI ecosystem, including infrastructure, data platform solutions, AI agents and business applications. Our AI Solutions such as TCS WisdomNext and Sovereign Cloud are seeing good traction across industries and markets.

We are also scaling AI expertise across the company. Our 114,000 associates with higher order AI skills as of this quarter represents one of the highest number in the industry. In Q1, we applied for 171 patents and were granted 119 patents. The Board has recommended an interim dividend of INR 11 per share. Also, this will be Milind's last quarterly press conference. He has been a distinguished colleague and had a stellar record of service over 38 years in the industry, part of the -- or integral part of our management team all these years. Joining TCS as a trainee in 1987. He rose to lead the manufacturing business group and subsequently became the CHRO.

On behalf of TCS, I would like to thank him for all his contribution. Thank you, Milind. As announced in the last quarter, Sudeep will be taking over from Milind. That is Sudeep, yes. Nobody can miss him, okay?

With that, I hand it over to Kritika. Thank you.

[Kritika Saxena, executive]

Thank you so much, Krithi. We'll start with Reema Tendulkar from CNBC TV18. As always, we want to accommodate everybody. So 2 questions, and feel free to take your questions one by one.

[Reema Tendulkar, analyst]

Krithi. Let's start with growth. Break up this quarter in terms of BSNL ramp down and how international markets did and the outlook. Does growth come back in Q2 or the deals which were paused is still paused? And what about your guidance for the full year, which you stated last time that growth will be better in FY '26?

[K. Krithivasan, executive]

Reema, like as we said, the sequential degrowth was minus 3.3%. Out of that, minus 0.5% would be attributed to international and remaining 2.8% would be attributed to BSNL winding down. From an outlook perspective, we are still confident and optimistic that international revenue in FY '26 would be better than our FY '25 revenue.

Overall, it will be too early to call out when growth will resume, which, to a great extent, depends on more clarity emerging in the macroeconomic scenario. But I think with all the trade discussions coming close, the new build that's been enacted in U.S. gaining presidential sanction approval. I think things should become clearer maybe towards the end of July or early August. So...

[Reema Tendulkar, analyst]

Aarthi, great to see you and look forward to more conversations with you. New service lines have done well. Can you quantify the kind of growth and provide some color on the deal wins? And Samir, if you could just tell us a little bit about the margin, the breakup. What was the tailwind that you got on account of the BSNL ramp down? Milind explain to us the 5,000 headcount addition and the timing of the wage hike? Wage hike, when you plan?

[Aarthi Subramanian, executive]

So Reema from a new age service line perspective, when you look at AI, data, cybersecurity, interactive, some of the modernization services in terms of movement to cloud application modernization. These service lines have grown well this quarter. And we see, especially on AI and data, strong demand from our customers.

Customers are investing in industry-specific solutions. AI for modernization is coming across as a strong theme because AI is -- Gen AI is now becoming the tool to really understand the legacy core and use Gen AI to convert and forward engineer to a modernized architecture and application. So these are all new opportunities. And when you look at Enterprise Solutions modernization, with SaaS platforms, so significant demand there as well. We don't call out service line specific numbers, Reema, but...

[Reema Tendulkar, analyst]

[indiscernible] number, 9.4% for the outlook going forward how is the pipeline?

[Aarthi Subramanian, executive]

The pipeline across these services looks pretty strong.

[Samir Seksaria, executive]

Our Q1 margins were at 2.5%. Sequentially improved by 30 basis points. And that's despite of building full capacity or we invested into capacity and continued our other investments for long-term growth and the tailwinds which you talked about mainly came in from reduction in sort of the quality of revenue or a reduction in third-party expenses and support from currency.

[Milind Lakkad, executive]

5,000 addition, which you see it in every quarter. So there's no difference here. It means we obviously started the quarter the way we started and realize that there are some business challenges towards the later end of the quarter. So this -- yes, the number is here. And we'll obviously leverage some of these resources for future quarters, obviously. With respect to wage hikes, we have not made any decisions so far on wage hikes, and we'll let you know as soon as we do that.

[Kritika Saxena, executive]

Next question from Sajeet Manghat from NDTV profit.

[Sajeet Manghat, analyst]

Krithi. In your statement, you mentioned about demand contraction. Can you give us a sense of what exactly you're seeing at this point in time because in Q4, you said that it's a wait and watch for you and now the commentary is much more in the sense, it's a more bearish in nature, when you're talking about demand contracts in there, because when you spell it out your Q-o-Q CCC, see your constant currency numbers, you said only 0.5% decline was from international and 2.8% was because of BSNL. So just if you can elaborate more on what exactly you mean when you say there's a demand contraction, which is there?

[K. Krithivasan, executive]

Yes. See, as I said, international was minus 0.5%. And there are 2, 3 levers at play like we discussed last time also, where clients have decided on a project and -- but where they think the ROA is not remain the same discussion, but only the bar on ROA goes up. So you find more projects are getting paused or delayed.

And in some places, we find the decisions where we thought a transformation project, a decision would be taken in this quarter. So that we can start the project those decisions get delayed, where the ROA clients are not clear about the return on investment on those projects. So the overall framework on which the projects are getting delayed or passed are very similar. But again, as you would see, like we had a minor -- very small growth of our small, it's a growth in North America and U.K. and Europe had a degrowth.

[Sajeet Manghat, analyst]

How much of that is linked to what's happening in the U.S. with respect to tariff negotiations and other? And because North America grew for you in -- on a quarter-to-quarter basis. So how much of that is linked to that?

[K. Krithivasan, executive]

See, it will be very difficult to quantify saying that ex percentage of growth was impacted by tariff discussion. But if you look at industries, for instance, consumer industry is more impacted by tariff. Manufacturing auto industry is more impacted by tariff. But certain industries like banking or not directly impacted, but have a second order impact because consumer confidence is low. But it will be very difficult to quantify x percentage to a particular event or a situation.

[Sajeet Manghat, analyst]

Aarthi. Can you give us a sense of the kind of AI deals, which are coming in because $9.4 billion of total contract value in this quarter, how much of -- what percentage if you can put to AI and if you can also give us an indication of what is the kind of productivity gains that you are bringing into the clients because what we are hearing on the ground is that the gains are very limited to the extent of 10% to 15%. Are you able to bring in more productivity gains, when you're engaging with your clients with respect to new orders?

[Aarthi Subramanian, executive]

Sure, Sajeet. When you look at AI, I think, first, the nature of opportunities, right? So customers are looking at building industry-specific solutions with AI domain solutions. So that's an area of opportunity, where we are seeing increased demand and the second area I would say is modernization, which I briefly talked about earlier. And how do you leverage Gen AI to really modernize your legacy applications, I think there's again strong demand there.

The third area is customers are looking at now that they see the ROI from the AI projects as they move from pilot to really delivering value. Customers are looking at how do we scale AI within their enterprise. So they're looking at how do I set up an AI office, setting up AI centers of excellence jointly with us. How do they create AI platform, so that their AI initiatives can scale across their value chains and functions. So those are the areas where we see the demand coming in.

And in terms of -- when you look at where AI is being applied from a service delivery perspective, right? So these are the bespoke new builds that you do, new application development. And then when you look at application operations, right? Or infrastructure operations that's where the productivity gains are starting to show. And also, all of us are hearing so much about coding assistance for development. So the savings are -- the productivity gains are there for the coding. But when you look at a software being built, there is much more end-to-end right from conceptualization, all the way to testing and delivery. So -- but the coding part of the value chain, we are seeing productivity gains.

[Sajeet Manghat, analyst]

Samir, 30 bps jump in margin for you. Your SG&A expenses came down by 2% on a quarter-to-quarter basis, if INR 9,300 crores, right? It is just showing -- its fallen there. And your other income has gone up nearly INR 600 crores. So if you look -- if you take this off, then you have a flat net profit, which is coming on the bottom line. So can you give us an indication of why SG&A expense? I mean, where do you get that gains from SG&A expenses and the addition in other income?

[Samir Seksaria, executive]

Okay. So on the SG&A expenses, there's nothing one-off to call out. We'll continue to drive our productivity. Overall, if you see sequentially it has been flattish to as you have been calling it out with the gain. As a percentage of revenue, it has been flattish, nothing. And we will -- we focus on driving efficiency across our various line items. On the other income, the INR 600 crores, which you called out as a 1 time, we have received some interest on income tax refunds that is accounted out there.

[Sajeet Manghat, analyst]

Milind, 6,000 net employees, if I'm not wrong, but your attrition is at 13.8%, which is a 2-year high. Are you seeing attrition inching up again?

[Milind Lakkad, executive]

I think definitely, it is a little more than our comfort level. We are 11% to 13% is our comfort range. It is a little more than that. We continue to make efforts to bring it down through continuous employee engagement, doing all the right things, which we normally do with our people, we continue to do that and bring it down is what our aspiration is always, and that is what we'll continue to do.

[Sajeet Manghat, analyst]

And did the gross target remains the same, INR 40,000?

[Milind Lakkad, executive]

So I think we are on target as of now. Depending on the business situation, we'll decide and calibrate how we take it forward.

[Kritika Saxena, executive]

Anurag Joshi from ET Now.

[Anurag Joshi, analyst]

Krithi. So the share of BFSI in your revenues, there's been a slight increase, whereas like if you look at some of the other industries, they've been steady. Do you expect discretionary spending also from the BFSI sector to rise?

[K. Krithivasan, executive]

See the share of BFSI increasing is more technical, because BSNL going down has an impact on -- the significant chunk. So that going down increases the share of BFSI. I don't want to -- you want you to read anything immediately or other. But from a discretionary spend, I think it is -- at this time in this call, we see it's almost secular across all verticals. Once there is a greater clarity. I think discretionary spend should come.

Like our underlying belief has always been that there is a lot of pent-up demand. And clients like Aarthi talked a lot about the opportunities that come through Gen AI. Clients want to do a lot of work, but being held back because of the lack of clarity that's in the market. So once there is a better certainty, you would see discretionary spend coming back.

[Anurag Joshi, analyst]

Yes. I am not going into specifics, but how would you characterize the momentum of the order pipeline right now? Right now, like if we see the TCV, that's like, I mean, almost reaching $10 billion. So it's a very optimistic kind of a pipeline you see, at least in the coming year?

[K. Krithivasan, executive]

We are comfortable with this number. We've previously also called out that INR 7 billion to INR 9 billion is a comfortable number. So -- but as long as we saw it's a good number. As long as there are no scope reductions, existing projects or passes don't happen. Like then it reduces the immediate quarter revenue. But overall, we are comfortable and the pipelines continues to be strong for the coming quarters also. So -- and in fact, across all geographies, which gives us the confidence that the order book and then sooner than later, the revenue should follow through strongly.

[Anurag Joshi, analyst]

And the buying down of the BSNL contract, again, the impact on your revenues, you are confident of overcoming that. And are there -- like I mean, going ahead, what are the factors that can offset this?

[K. Krithivasan, executive]

See, we try to offset the wind down. Both as I said, we are confident that our international revenue will be better than last year. We're also looking at -- see BSNL itself that is giving us a new set of offerings that we can take to the market. That's a new capability we have that we also would like to take that to the market and we have diversified further in many other emerging geographies than before. So collectively, it should help us bridge the gap, if not completely offset.

[Anurag Joshi, analyst]

My question to Milind, like over 100,000, I think it's over like almost 112,000 of your employees, like they have capability of AI. As human resource strategy, is that something you look TCS is looking to instill and just make this broad-based across the organization? What are the plans over there?

[Milind Lakkad, executive]

Absolutely. Absolutely. As you have been saying from the last so many quarters, we have been sharing with you in terms of how we are building AI competency across the organization. Now we are telling you how we are basically taking it -- building a pyramid around that and that building higher order competencies will continue to improve quarter-after-quarter, and that is the path.

[Kritika Saxena, executive]

Ekta Suri from Zee Business.

[Ekta Suri]

[Foreign Language]

[K. Krithivasan, executive]

So as I said, Ekta. Like our -- I am confident of the international revenue in FY '26 to be better than FY '25, it's based on the order book we see customer conversations we have. And there's the interest that we see in multiple service lines. Customers are interested in modern -- data modernization, application modernization. There is an ERP transformation that many of the customers are interested in doing. And there are a lot of cost optimization proposal. There is a leveraging AI for business outcome. So there are a number of opportunities. As I said, what we are -- the only thing that's a bottleneck at this time is a certain amount of lack of clarity in the market. So once that lifts, we believe the spend should come back.

[Ekta Suri]

And by when do you think so there will be a little bit clarity?

[K. Krithivasan, executive]

I will not put a time line to that data.

[Ekta Suri]

[Foreign Language] or else you'll see there's some kind of lag because right now, at this stage, we are, most of the people, I mean, they want AI, [Foreign Language]?

[Aarthi Subramanian, executive]

So Ekta, if you really look at AI, Gen AI and look at it over the last 3 years, right, Gen AI was new and showed us the promise. Everybody was trying to experiment with it, and there were individual use cases and people were wanting to see what the power of this technology is. But almost 3 years later now, right? The power of the technology is understood and people see how they can reimagine their businesses, their processes, their ways of working with AI.

So I think the whole shift from doing experiments to doing real projects that deliver value, that shift has happened. And so the revenue is coming, right? And this quarter, when you look at it, AI revenues have grown. But like I said before, when you look at AI revenues, AI is pervasive. So you'll have business industry-specific projects. You'll have AI, which is embedded when you're doing engineering or doing IT operations. So I would say that across the board, there is momentum.

[Ekta Suri]

[Foreign Language]

[Milind Lakkad, executive]

[Foreign Language] It is not something which we bother too much about, because we anyway will leverage these resources going forward. [Foreign Language].

[Ekta Suri]

[Foreign Language]

[K. Krithivasan, executive]

[Foreign Language]

[Kritika Saxena, executive]

Shivani Shinde from Business Standard.

[Shivani Shinde]

Krithi, question for you. So we have been seeing on a quarter-on-quarter basis, the ramp down, the plan from the $100 million, $50 million reducing. What is the reason? Especially if I look at the $50 million, you -- of course, you've spoken about the $100 million. But in the $50 million, and I'm not going back to the other quarters, but just this quarter in the Y-o-Y comparison, there's some 9 clients that have -- that are not there. So what is the reason for clients? Because these are supposed to be the clients, which is supposed to stick around for a longer period of time?

[K. Krithivasan, executive]

Shivani, like the clients have not gone anywhere that they are continuing to be with us. For instance, I think I did explain this last quarter also when there is a degrowth like assume that there is an average de-growth across the board, if some customer was previously on an LTM basis, $50 million and $100,000. If the revenue falls by even in the last 4 quarters, if it falls by $0.5 million. Because of the de-growth, then they will count them not as a $50 million trend, they will become into -- fall into lower band.

So the clients don't go away anywhere. It's because the revenue drops, which is you should expect because when there is an overall revenue drop, there will be a revenue drop across multiple accounts. And if a particular account happens to be just a border and accounting $50 million band, you would see some of them falling behind.

[Shivani Shinde]

On the BSNL deal, when do we see the next ramp up? Because you've got an additional work from them?

[K. Krithivasan, executive]

We are also waiting. We see we have the advanced purchase order, but we need a final purchase order to proceed. We are waiting for the opportunity.

[Shivani Shinde]

Aarthi, to you, we're all talking about Gen AI. Tata Group is such a big, big group. If every business is going through this AI road map. I'm quite sure all the Tata companies are also which the Chairman has always said, what's the potential for TCS to be a part of that? Do we already -- I mean, does TCS already work substantially on some of these AI journey that some of these companies would have gone through. Anything that you can say?

[Aarthi Subramanian, executive]

So Shivani, TCS is very actively working with a set of companies across industries within the group, so across retail, automotive, steel and other industries and also some of our new businesses, right? Whether it's some of the Tata Electronics and other businesses. So we're a very active partnership, and we work very closely with them.

[Shivani Shinde]

Right. And just 1 more, a bit the new buzzword is, of course, Agentic AI. Anything that you can tell us in terms of the deals that you're already working with, if not numbers, at least some nature of work?

[Aarthi Subramanian, executive]

Sure, happy to. When you look at Agentic AI, I know all of you will agree that this is something that is a term that is fairly new, about maybe 6 to 8 months, since we started hearing about it. But what is interesting is it's becoming part of all our client conversations. So where are the opportunities? These are again -- these are all rapidly evolving and early-stage technologies. But because the power of these technologies, people are very keen on experimenting and seeing what they can achieve with it.

So there are 2 areas, where we are already working with customers. One is the industry value chain solutions with Agentic AI. So just to give you an example, in [ BFS ] and manufacturing, right? We have started building our own Agentic AI solutions, which we are now -- we have agents, which are already built and many others, which are part of the road map and those initial anchor customers in these segments are coming in, and we'll see more of these across industries. The other area is business process services, where Agentic AI, again, offers very exciting opportunities to look at how traditional automation has been done.

[Shivani Shinde]

Would you look at an acquisition as well, since it's spoke about business process?

[Aarthi Subramanian, executive]

I'll not comment on this question.

[Shivani Shinde]

Milind, Aarthi said in the comment that 1 of the impact of AI is, of course, on the software coding, but there's been a huge productivity gain and it's happening across the industries. What has been the impact on hiring, when you are looking at engineers now?

[Milind Lakkad, executive]

Like I said earlier, and we said this earlier also, I think, the point is we continue to expect to hire the way we have been hiring and the kind of jobs and the roles they will do is different. So we don't expect a reduction in hiring at this point in time as a result of AI.

[Kritika Saxena, executive]

Next question from Ashish Agashe, PTI.

[Ashish Agashe]

Sir, last time, you had said that, okay, there will be other opportunities in India, which would possibly come up. What are those as we speak right now. Probably, it will help you as well given BSNL winding down. We speak a lot about supply chain and alternative, India emerging as an alternative there. So are there any specific things which you can share probably. This is excluding the work which you would be doing with state-run enterprises or with the government.

[K. Krithivasan, executive]

See, we look at both state run and the public sector enter other enterprises. But 1 area where we, in fact, in this quarter, we made announcement about accelerating India, like how do we participate in multiple digital and AI initiatives the government has. We announced our Sovereign Cloud offering. We offer -- we also made our announcement on the offering around the cyber Defense Suite. We also had an announcement around [ Digico ] or Digi where we are essentially governance could be. So there are a number of areas, where we are working at to enhance our participation, both with governance and enterprises.

[Ashish Agashe]

And sir, secondly, probably you have been seeing the TCBs for a good time now broadly holding up, possibly rising as well as this quarter. So just an elementary question, sir, where is this really coming from at a time and you are saying that you see sort of some bit of demand impact because of macro issues. Also, sir, if you can help us with some color on the pricing front, we haven't discussed it?

[K. Krithivasan, executive]

So the -- Ashish, the overall TCV fine comes primarily from, where against customers these interested, see it's not that the transformation projects are completely shut off, right? Like what we are talking about is there is a balance between transformation and cost optimization projects. So during times like this, you will find more TCV coming from cost optimization than transformation programs. Your other question was on?

[Ashish Agashe]

Pricing.

[K. Krithivasan, executive]

Pricing. Pricing has been largely stable. We are not seeing any pricing pressure. Samir, if you want to add.

[Samir Seksaria, executive]

No, that's it. We could see aberration at client level, overall portfolio level, pricing is stable.

[Kritika Saxena, executive]

Himanshi Lohchab from the Economic Times.

[Himanshi Lohchab]

Samir, I would like to repeat the question. This has been one of the weakest quarters in terms of revenue growth, one of the strongest in terms of profit growth. Can you help us understand how did that come about? What are the internal levers that the company is pulling during times of these uncertainties?

[Samir Seksaria, executive]

Sure. So as I said, on the EBIT margin level on the operating margin, we saw a sequential improvement of 30 basis points. And that primarily came in through a combination of savings in third-party expenses as well as some support from currency. And further in other income has been good. We had greater investable surplus. And we also had some one-off in terms of refunds, which we are interested on income tax refund, that's INR 600 crore number. And overall, PAT growth then has been about 4% sequentially.

[Himanshi Lohchab]

Okay. And also, Milind, any color on wage hikes, especially now that attrition has been edging a little up? So...

[Milind Lakkad, executive]

No, I said this before. I think we have not made a decision on that front yet. And we will decide during the year. And as soon as we know, we'll let you know.

[Kritika Saxena, executive]

Krishn Kaushik from Financial Times.

[Krishn Kaushik, analyst]

Krithi. Can you help us provide some details about the investigation into the hack in M&S because TCS name had come up earlier?

[K. Krithivasan, executive]

Krishn, we discussed and disclosed during the AGM as well. 1, we can confirm that none of the TCS systems were compromised are impacted, which means that none of our customers were impacted, other customers were impacted. 2, we can also confirm that TCS is not under investigation, while the clients are continuing their investigation, but we can confirm our associates followed the process.

And third is we are not directly under investigation from the customers also. So I think we've been -- but at the same time, the overall investigation is continuing. It will take some time for them to close the whole thing. We are collaborating with them.

[Krishn Kaushik, analyst]

Second question, there's degrowth in our contract -- like demand contraction domestically as well and a higher attrition rate. Can you -- is the impact of GCC can be visible in any of these things?

[K. Krithivasan, executive]

See domestic demand contraction, as you see is primarily you would see from BSNL. If you take BSNL out our services revenue actually had a good strong growth in this quarter. Other part I leave Milind.

[Milind Lakkad, executive]

Yes, I think this is -- I've been there for many, many years. So I don't think that is the reason for any -- on attrition. Yes, this is definitely more than what we normally would beyond our comfort zone. We need to be working on that and see we can bring it back to the loans.

[Kritika Saxena, executive]

Next question from Debangana Ghosh from Money Control.

[Debangana Ghosh]

So my first question is, given the kind of surge we are seeing in Gen AI and AI. So I think there was a point in TCS' annual report which said that TCS' has a partnership through its co-innovation network with nearly 3,000 startups. So I wanted to understand, if TCS will further look to invest into any of these start-ups or perhaps do an M&A or an acquisition for additional capabilities in that space?

[K. Krithivasan, executive]

From an overall, we can't keep looking at opportunities for M&A. We -- this actually gives us more access to talent, more access to technology, more access to clients. But we also look at what it should be value accretive to us to our shareholders, to our customers, all the stakeholders. So we constantly look at like, in fact, we've been expanding the horizon to see where all such opportunities exist, quite open to that too.

[Debangana Ghosh]

Sure. And what's the overall outlook on mega deals in FY '26 in the upcoming quarters?

[K. Krithivasan, executive]

See, we have never provided a outlook on mega deals, and we always said mega deals happen in very lumpy, okay? Like sometimes you'll have them in -- if I remember right, FY '25, we did not have -- Samir, we did not have any mega deal in FY '25, FY '24, we had. So it's very difficult to provide outlook on mega deals. But we do continue to work because they tend to be a long gestation, right? But we are working on a couple of them by some -- definitely mega deals happen, we will disclose.

[Debangana Ghosh]

Sure. Samir, what's the view on cross currency benefits in the upcoming quarters? And will we see the margins continue to inch up to that aspirational 26% to 28%.

[Samir Seksaria, executive]

Cross currency this quarter, at least has been quite volatile. Rupee in fact appreciated in the early days against the dollar, but depreciated against most of the currencies, dollar depreciated against most major currencies. So difficult to call out in terms of how it's going to stack up, and that's where we have a stable hedging program, which helps us at least hedge or balance the short-term volatility, which could come in the coming quarters. Your second question was in terms of?

[Debangana Ghosh]

Operating margins.

[Samir Seksaria, executive]

Operating margins or what are the levers for the future, right?

[Debangana Ghosh]

Will we reach it?

[Samir Seksaria, executive]

Okay. All right. So absolutely. See, our long-term average is our long-term goal. And what we believe is 26% to 28% is what our long-term cost structure should be -- should help us operate into. Given the current certainty, uncertainty environment, we have been investing into a few things, looking at what the -- our client priorities are. And our focus is to capture demand in its first place.

[Kritika Saxena, executive]

Urvi Malvania from Financial Express.

[Urvi Malvania]

Samir, you had said that there is no pricing pressure on a portfolio level, but there are some client aberrations. Now are these clients from a particular category? Or are these...

[Samir Seksaria, executive]

It's generic. Usually, in a competitive situation, you would have some aberrations. That it. No specific thing to call out as a specific vertical or geography.

[Urvi Malvania]

And Milind, given the -- what you said about how you started off with hiring and then things slowed down, does this change your outlook for fresher hiring in this year? Because you had said last year, 42,000 this year more?

[Milind Lakkad, executive]

See, first of all, you know what, let me, I say it all the time and I'll say it again, we honor all the offers. It's very important that we honor all the offers that we will do. So we -- that process is gone and we have offers, we will go through that. How and when that will happen, how many will come in each quarter, it will depend on the business situation.

[Urvi Malvania]

Okay. And the fresher hiring exercise you do this year, would that be affected?

[Milind Lakkad, executive]

We will decide based on -- obviously, we'll go to the campus, but how many and what is that we need to do from a volume standpoint is something we'll decide during the year.

[Urvi Malvania]

Because you had said that -- at the end of FY '25, you said that FY '26, you will look to more than the fresher hiring of FY '25. That's where I want to...

[Milind Lakkad, executive]

So -- see in the FY '26 onboarding happens based on the campus. I think that has happened last year, FY '26 going to campus will basically bring in trainees next year. So these are 2 different things. So what is that we do next year depends on the business situation right now.

[Kritika Saxena, executive]

Next question from Vallari from the Hindu Business line.

[Unknown Analyst]

I wanted to ask how are you guys planning for the regional market? Because I understand BSNL is ramping down, but then what exactly is your expectation right now? Are you expecting to further trend to persist? Or how exactly are you planning for the regional market?

[K. Krithivasan, executive]

We are focused on all regional markets, like say, emerging or regional markets. India is one of the important markets for us. Similarly, we are very focused on Middle East Africa. In fact, the ASEAN countries are proving to be very good like we have been having strong wins in ASEAN countries as well. So it will continue to be a growth driver.

[Unknown Analyst]

Any specific names in the Asian countries?

[K. Krithivasan, executive]

We do -- see, always we've been strong in Singapore. In the last few years, we increased our focus on Malaysia. Now we have increased we also been participating in good opportunities in Philippines and Indonesia as well. So...

[Unknown Analyst]

And this is specific to any particular vertical or...

[K. Krithivasan, executive]

Depends. I don't think it's vertical specific. You find in Malaysia, we work very well with 1 of the resources company. In Philippines that we had in discussions with our banking provider. So it is not very domain-specific.

[Unknown Analyst]

And Aarthi, ma'am. So on the AI agent that you mentioned with the BPS. Did you mean that you guys are planning to expand in the BPS sector? Or could you just give more color on what you had said just now?

[Aarthi Subramanian, executive]

So, Vallari, what I meant earlier was when you look at business process services, how we deliver, right? How you automate and bring more accuracy, predictability to the delivery, earlier if you look at it, all of us heard about robotic process automation. But now with generative AI, you have 2 avenues to how you run the business process operations. So those are the new opportunities of how you can look at automation very differently.

[Unknown Analyst]

Would you say BPS is very important in terms of the Agentic AI services that you guys are working on right now?

[Aarthi Subramanian, executive]

I think I would say equally important, all service lines, we are infusing AI because the opportunity is indeed across every service line.

[Unknown Analyst]

And last question, in terms of the new services that you mentioned in your statement, is it only focused towards Agentic AI services? Or are there any other services?

[Aarthi Subramanian, executive]

So all services AI, data, fiber, cloud, digital engineering, all these are new AI services, which are getting transformed.

[Kritika Saxena, executive]

Anjana Antony from [indiscernible].

[Unknown Analyst]

My question is about the BSNL -- the BSNL deal, how high was the expenses for the deal, not the latest one, but the BSNL deal, how high was the third-party expenses was -- did it exceed your estimates, if you can give a quantum, it would be great?

[Samir Seksaria, executive]

We don't give out profitability or expenses at a customer level. We don't diverse these details. But if you do the math, we have called out that the margins on that deal were lower than our usual margins.

[Unknown Analyst]

Did it exceed your estimates by any chance?

[Samir Seksaria, executive]

No.

[Unknown Analyst]

And another question is about -- I know you have already gave the comment about hiring and wage hikes. If the macroeconomic environment turns in favorable of the company, how much would be the hike that you will be announcing or any color on that?

[Milind Lakkad, executive]

So many ifs here. So if the macro environment improves and as a result, if our business improves, we'll definitely give the best possible hikes we normally give.

[Unknown Analyst]

Any quantum that you're looking?

[Milind Lakkad, executive]

We don't give away that also.

[Kritika Saxena, executive]

Varun Sood from LiveMint, last question from a journalist in person, and then we'll take 2 questions online to everyone, who's patiently waiting.

[Varun Sood]

Krithi. A clarification, when you said there has been a delay and that delay in decision-making has intensified. Last quarter, I believe you had about $12.2 billion TCV. This quarter, you have about $9.4 billion. So would it be fair to say that a delay in decision-making is leading to fewer contracts coming from third-party IT firms. And at the same time, the scaling up of some of those projects that is also getting delayed. So the delay in decision-making is happening on both fronts? Would that be a fair conclusion?

[K. Krithivasan, executive]

Yes. So 1 is when I say delay in last year comparing it last quarter to this quarter. So that is not a like-to-like comparison, as I keep mentioning, the TCV number by itself is lumpy. So it's very hard to compare it from 1 quarter to other. Even sometimes even difficult to compare same quarter last year. You need to look at the overall trend and what we are doing on a LTM basis than comparing it on just a quarterly basis.

But at the same time, the fact that there is a delay would have an impact on -- because there's a delayed decision-making, you would see a reduced number of orders closed, which means that the number will decrease. So...

[Varun Sood]

And the contracts, what you have won, those are also taking time to start again?

[K. Krithivasan, executive]

There are some places where the contracts have been about to be signed or where we have been selected, shortlisted that the signing takes probably more time than what otherwise would have taken? Yes, a few, not many few.

[Varun Sood]

Aarthi, the question on Gen AI when you mentioned that case-based approach to ROI-led scaling in the immediate term, 12 to 18 months, can TCS just share, is it leading to some kind of revenue cannibalization or impact on profitability say, like-to-like basis, if that work was being done by engineers and now with Agentic tools and AI, is it leading to some kind of a revenue loss or what is the impact on profitability in the 12 to 18 months, the near term.

[Aarthi Subramanian, executive]

So, Varun when you look at how AI is being leveraged by enterprises, right? So 1 side of it is you're trying to solve a business problem or a business opportunity. You're saying that how can I do things differently, right? The entire human plus AI model, right, as the technology evolves, right? So there is a work that a human today does. Today, it is augmented and assisted by AI, right?

But -- so there is -- to that extent, there is productivity or enablement for the same job to be done better, improving accuracy or turnaround times and things like that. So that's 1 aspect of AI being applied to business. There, I would say that it's a growth opportunity, right? Because newer projects, this is more discretionary spending around AI.

[K. Krithivasan, executive]

Varun, if there is an opportunity to cannibalize our revenue and you benefit to our customer. We'll always do that.

[Varun Sood]

Just 1 small question.

[Kritika Saxena, executive]

We have to go to the journalist. Small question.

[Varun Sood]

Samir. The margin, 24.5% doesn't take into account the wage hike, which you gave last year. And last year, you had a margin of 20.7%. So actually, profitability is a little, what should I say, worrying because you did not factor in over 2 quarters like you do. Now assuming if TCS gives a wage hike sometime later this year, and as you have at or listening or reading TCS, you always improve your profitability during the course of the year. So is this -- is there a downside risk that, that trajectory may not follow assuming you give a wage hike?

[Samir Seksaria, executive]

Varun, we'll factor all of it in. And with that, we'll be committed to improving our profitability. And as we have said, long term, we want to move towards closer to our 26% to 28% band.

[Kritika Saxena, executive]

Thank you. We'll go to the journalist online. Now Hari Viswanath from the Hindu. Hari, you can unmute your mic and ask your question.

[Hari Viswanath, analyst]

My question is, it's been a tough 2 years, not just for you, but some of your close peers also. But specifically for TCS, when I actually look at the way FY '26 is trending and combine it with the last 2 years, this will be your weakest 3-year performance on record, even more challenging than what you went through in FY '16 during the digital transition and a short period during COVID also.

So there are reasons to believe this slowdown is structural because in the last 2 years, although there are challenges in FY '26, in last 2 years, the global GDP growth has been quite robust and global technology companies have fared pretty well. So in this context, my question is on your payout ratios. Your payout ratios were amped up in 2017 after your revenue started recovering from the digital transition hiccups in 2015, '16, and at that time, it was a good time to hike up your payout ratios.

But now with this kind of a slowdown that you're enduring, and it's 3 years is quite -- you could call what is a medium term. Do you think that is a case to revisit your payout ratios because the industry itself is changing. A lot of things are happening AI and without AI also. And so has there been any thinking within TCS to reconsider payout ratios, increased investment in allied technology areas. The shareholders have also been sending a message in the last 3, 4 years that growth matters over payout ratio. So I just wanted to hear what you have to see on them.

[K. Krithivasan, executive]

I'll give an overall philosophical stand we have, and then Samir can provide more details. We believe like if there is an opportunity to invest, we would invest. If we don't see an opportunity to invest, we will not hold the cash with us, we'll return it to the shareholders. And we always also kept our commitment is between 80% to 100% of the cash flow -- free cash flow will return to the customers. So the philosophy doesn't change. At the same time, if we see a good opportunity to invest and then thereby increase shareholder return. We will then hold back and make those investments. Samir, if you want to add.

[Samir Seksaria, executive]

Go ahead.

[Hari Viswanath, analyst]

I just have 1 follow-up. So then I'll take Samir your views also. See, my doubt is do you think like 2021, there was outlook that double-digit growth is sustainable for a foreseeable future. Now it's been low single-digit growth. So, I'm not saying double-digit growth, but high single-digit growth, is it possible without investing aggressively?

[K. Krithivasan, executive]

We are optimistic. Okay, like if you ask me whether this year, we will get a high single-digit growth this year may look tough. But as I said, given the order book we have, given the customer conversations and our belief that many customers have to undergo a technology transition. We believe like we are quite optimistic, like I don't want to put a year, whether it will happen next year or year after or whether we will do an acquisition or not. But theoretically, it's possible.

[Kritika Saxena, executive]

Okay. Next question and last question from Bala from Analytics India Magazine. Bala one question, please, really tied on time.

[Unknown Analyst]

I just have a question. There's been a decline in expenditure cost of equipment and software licenses. Does AI has anything to do with that?

[Samir Seksaria, executive]

Bala. AI have -- that line item which you called out is purely because of the large transformation deal which we are executing coming to a closure.

[Kritika Saxena, executive]

Thank you. Thank you so much. Big thanks to everyone who are patiently waiting online to all our stakeholders joining us on our social media channels and of course, to everyone here. Please join us for refreshments and have a very good evening. Thank you for watching.