TCS — earnings call

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Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Ms. Nehal Shah from the Investor Relations team at TCS.

Thank you, and over to you.

Nehal Shah

Thank you, operator.

Good evening, and welcome, everyone.

Thank you for joining us today to discuss TCS' financial results for the fourth quarter and full year FY 2025 that ended March 31, 2025.

This call is being webcast through our website and an archive, including the transcript, will be available on the site for the duration of this quarter.

The financial statements, quarterly fact sheet and press releases are also available on our website.

Our leadership team is present on this call to discuss our results.

We have with us today Mr. K Krithivasan, Chief Executive Officer and Managing Director.

K Krithivasan

Hi, good evening.

Nehal Shah

Mr. Samir Seksaria, Chief Financial Officer.

Samir Seksaria

Hello, everyone.

Nehal Shah

And Mr. Milind Lakkad, Chief HR Officer.

Milind Lakkad

Hi, everyone.

Nehal Shah

Our management team will give a brief overview of the company's performance, followed by a Q&A session.

As you are aware, we don't provide

Moderator · Conference Operator

We'll take our first question from the line of Yogesh Aggarwal from HSBC Securities.

Please go ahead.

Yogesh Aggarwal

Thank you.

Hi, everyone.

So just a couple of questions.

Firstly, Samir at 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?

Samir Seksaria

I meant tactical interventions, which had a sequential margin impact of 100 basis points.

And those are primarily promotions, which were effective 1st of January.

Yogesh Aggarwal

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 was the trigger behind these promotions which weren’t planned earlier?

Samir Seksaria

It is not that promotions were not planned earlier.

It is in its normal course.

We were probably one of the only companies who gave a full cycle of increment also, starting at the beginning of the year.

And these are not something which were unplanned.

Yogesh Aggarwal

Okay.

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 the IT industry as clients invest in various newer areas.

So, in your conversations, once dust 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?

K Krithivasan

Medium to long term, Yogesh, I definitely believe there will be in two ways.

One is AI/ GenAI is gaining a lot of traction and momentum.

And currently, while the

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC.

Please go ahead.

Sudheer Guntupalli

Hi, Krithi.

Thanks for the opportunity.

Just a couple of questions.

Firstly, you are still talking about the expectation of FY '26 being better than FY '25.

This is despite the 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 FY '26 to be better than FY '25?

K Krithivasan

So, Sudheer, we have had two quarters of good TCV.

And that's what one most important factor giving us confidence.

And two is our belief.

We can go wrong or believe that this uncertainty will be short-lived.

And some clarity will emerge, and our clients will start investing towards more technology transformation programs or adopting technology.

So, this is essentially based on client conversations we are having.

And we believe some of the pauses we saw are more temporary.

Sudheer Guntupalli

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 would have played out vis-à-vis December quarter?

If there are any major shift towards new or towards renewals?

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Ravi Menon from Macquarie.

Please go ahead.

Ravi Menon

Thank you for the opportunity.

You talked about how last quarter, I think that the deal durations are a little lower, and that means that the TCV will convert to revenue faster.

So, should we think about the FY '25 deal wins in that context that although it's nearly 8% lower year-on-year because the durations are lower, still the ACV number is higher?

K Krithivasan

Ravi, if I remember right, we talked about the deal cycles being shorter.

They're shortening in Q3. We did not say the deal durations are shrinking.

And the deal cycles continue to remain where it was at Q3 level.

We did not say in Q3, the deal duration has shrunk.

Ravi Menon

Thank you.

So, the promotion cycle seems to be something that's unusual and I think that along with the wage hike deferrals seems to be conflicting signals.

Could you explain a bit about that 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?

Milind Lakkad

Yes.

So, these promotions were planned and that's why they were carried out.

The wage hikes are for FY '26.

And that is why, basically, that is the reason why we are basically looking at the way there is uncertainty in the environment.

Once clarity emerges and then we will decide, when do we carry out these wage hikes.

Ravi Menon

Thank you.

And one last follow-up from me, if I may.

Did you do a lot of higher- and lateral hires this quarter?

Would that also be part of the reason why employee costs are up?

Moderator · Conference Operator

Thank you.

Next question is from the line of Ankur Rudra from JPMorgan.

Please go ahead.

Ankur Rudra

Hi.

Thank you.

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?

K Krithivasan

Ankur, it is for the international business.

Definitely, we believe, FY’26 will be stronger than FY'25.

But there is also an expectation that once the uncertainty settles on, there is an opportunity for us to deliver as a whole business also because we are constantly looking to replace the headwind.

I think you guys are all worried about how the BSNL revenue is going to be replaced.

We are also constantly looking at opportunities to replace this revenue domestically and internationally also.

Ankur Rudra

Okay.

Thank you for the clarification.

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?

Milind Lakkad

See, we have been giving promotions every year as per the cycle every quarter.

And that is what we have been following.

And we have done two cycles of promotions.

And as per the plan, and that has happened this year.

So there's -- this is done as per the plan for FY '25.

There are absolutely no delays in this.

Ankur Rudra

Okay.

Understood.

So historically, this may be the same type of taken exist, maybe it's more visible this time versus the other periods?

K Krithivasan

Ankur, promotions depending on the grade happen throughout the year, almost every quarter.

In July and January, we give more promotions because at that

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Apurva Prasad from Franklin Templeton.

Please go ahead.

Apurva Prasad

Thanks, 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?

K Krithivasan

A good portion of that came from delays that happened in March.

But I think from the middle of February, some sectors like this because this chatter started, particularly as I called out, when consumer confidence fell, it started falling towards the end of February itself.

So, like we said that some sectors, we had some delays and deferrals started happening in late February or third week of February, but a significant part of it is in March.

Apurva Prasad

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 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?

K Krithivasan

Apurva, I can answer for this year.

See, for instance, in one of our large deals we won, we demonstrated to our customer how AI for IT can save them significant cost.

That resulted in the customer actually giving us a much larger portfolio and resulted in market share gain.

For TCS, it proved to be a net incremental in revenue, not deflationary.

So just because AI for IT can bring in productivity doesn't mean it has to be – reducing our overall revenue.

It can help us with market share gain.

And we do see instances.

Currently, even otherwise also, we are not seeing instances

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Vibhor Singhal from Nuvama Equities.

Please go ahead.

Vibhor Singhal

Yes, hi.

Thanks for taking my question.

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 manufacturing on retail?

Any color on the vertical- wise conversations that would be really helpful?

K Krithivasan

There is some impact across the board, but there are some sectors more impacted than others.

For instance, our consumer business, you're seeing more impact like retail, CPG, airlines, travel hospitality, we see more impact.

Similarly, there is an impact in the auto sub segment within manufacturing.

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Gaurav Rateria from Morgan Stanley.

Please go ahead.

Gaurav Rateria

Thanks for taking my question.

The 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, GenAI 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 all projects have some or other element of AI from a software engineering perspective?

Any color on that will be helpful.

K Krithivasan

See what's happening is, any program that we sign today, there is a request and expectation from the customer that there would be a leverage of AI.

It need not necessarily mean that the whole program will be done in AI.

There'll be an expectation that for some aspects of Software Engineering, we'll leverage AI, and through AI, it will be expected to deliver a certain amount of productivity.

So, this is a normal course because as more and more ADM projects come up for renewal?

Or even without coming up for renewal, there will be expectations from customers.

We will keep them future-ready by infusing AI.

We don't see any -- and the productivity benefits if we realize, we pass it on, our share with the customer.

Gaurav Rateria

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 up-front investments in the P&L, which will accrue to you in terms of greater demand in future?

Milind Lakkad

So, I think if you look at our trainee intake, yes, the percentage of hires we have in digital is 40% compared to 17% last year.

So that definitely changes

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Kumar Rakesh from BNP Paribas.

Please go ahead.

Kumar Rakesh

Thank you for taking my question.

My first question was around margins.

So you spoke about that there is a 60 basis point impact on marketing exercises.

Is that one-time 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 like last year during this quarter?

Samir Seksaria

Okay.

I'll handle the first one in terms of the 60 basis points.

So these were mainly marketing interventions, higher travel, some purpose-driven initiatives or CSR expense.

Nothing unusual, you'll have pluses and minuses each quarter.

So, it's not very significant to call out as an exceptional or a onetime item.

I'll let Milind answer on what the number of promotions were last time.

Milind Lakkad

Our promotion cycle in FY '25 was exactly the same as what we had in FY '24.

There is no material difference between the two cycles or between the two years.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that was the last question for today.

I now hand the conference over to management for closing comments.

Over to you.

K Krithivasan

Thank you, moderator.

In FY '25, our revenue grew by 4.2% year-on-year in constant currency, with an operating margin of 24.3% and a net margin of 19%.

We are pleased with the strong TCV of 12.2 billion in Q4, with sharp uptick seen across markets and industries.

We are monitoring the global situation very closely.

We continue to stay close to our clients and strive to be the partner of relevance at all times.

I would like to thank all TCSers for their effort and unwavering dedication to realizing their own and company's potential.

We are looking forward to the promising opportunities that 2025 will bring to us with cautious optimism.

With that, we wrap up our call today.

Thank you all for joining us.

Moderator · Conference Operator

Thank you, members of the management team.

On behalf of TCS, that concludes this conference call.

Thank you for joining us, and you may now disconnect your lines.

Note

This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings.