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 touch-tone 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's Financial Results for the Second Quarter of Fiscal Year FY 2026 that ended on September 30, 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 everyone.

Nehal Shah

Ms. Aarthi Subramanian, Executive Director, President and Chief Operating Officer.

Aarthi Subramanian

Hi, everyone.

Moderator · Conference Operator

Thank you very much.

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

Please go ahead.

Yogesh Aggarwal

Hi.

Thank you so much.

So, Krithi, couple of questions.

Firstly, the heightened investments in AI are a very welcome change.

My question was, can you provide a little more clarity on the capex required?

Because 1 gigawatt seems to be a very, very big investment.

I mean global references are almost $20 billion of investment.

So, what is the time period? what is the kind of capex?

And you said it is sovereign.

So, what does it mean in terms of clientele?

Would you be selling into your traditional clients or mostly in India?

So, a little more clarity would be very helpful.

K Krithivasan

Yogesh, from a capex perspective, while we have set a target of 1 gigawatt, we will be doing it in phases.

We expect to achieve 1 gigawatt over a period of five to seven years.

And our calculation roughly is about every 150-megawatt will require a capex of about $1 billion.

It's not that we are going to put all the money in year one.

And we also clarified that this would be a combination of equity and debt, and we'll also bring in finance partners for the equity.

So maybe if you require more color, Samir can provide on that.

The reason that we are saying sovereign cloud is it's going to be established in all centers in India.

We are expecting all data and compute to be hosted in India and not leave the shores of India.

That's the reason we are saying sovereign data center.

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.

And a follow-up to what Yogesh has asked.

So, on this AI data center move, currently, do we have any tie ups with any of the, let's say, large consortium players like a Stargate or any of the deep tech players, either for bringing in more equity investments or for being our tenants once this is set up in the steady state?

And any broad indications on the revenue per megawatt you're looking at and the EBITDA margins and the IRR’s you are expecting on this data center investment?

Samir Seksaria

Sudheer, in terms of both, one, Krithi talked about finance partners, we are speaking to multiple partners, and we'll finalize in terms of combination, it could be one or more coming in.

Also in terms of customers, as we called out, it would be hyperscalers, India enterprises, government, and we look at in terms of overall partnership.

In terms of metrics, too early to call out, we have just set up the subsidiary.

It would be about 18 to 24 months, when the first revenue starts kicking in at the appropriate time, we'll start calling out the metrics as well.

Sudheer Guntupalli

Fair enough, sir.

And just to get to understand the operating model right.

Did you say that we will provide it on a cloud service provider basis or a co-location basis or just on a managed services basis?

Samir Seksaria

On a co-location basis.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Ankur Rudra

Thank you.

I just wanted to understand this AI transformation you're doing.

What does it entail in terms of existing client engagements?

Do you have a sense of potential productivity gains or any kind of change in scope from a deflation or inflation perspective on your existing services as you transform?

K Krithivasan

Ankur, this whole our belief and confidence in becoming the largest AI-led services company is based on the strength of the existing client relationships.

And the partnerships that we are building with all the players in this ecosystem.

And we expect every project that we do will be AI led.

So, which means that we'll be offering speed, we'll be offering flexibility and there could be productivity gains also in these projects, but we'll also be doing projects that could not have been done without AI in the past.

So, our expectation is overall scope of engagement or size of engagements would definitely increase.

But there would be productivity benefits that the clients would get in the individual projects.

And we also will get some productivity benefits from doing these projects because we'll be leveraging AI.

Moderator · Conference Operator

Thank you.

Next question is from the line of Ravi Menon from Macquarie.

Please go ahead.

Thank you.

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

Please go ahead.

Gaurav Rateria

My first question is about the investment in the new subsidiary on data center.

Should we look at this investment as a standalone new business you need for providing co-location services or should we think about having a very thick synergy with your existing portfolio of services using this asset intensive business to build some services on top of it?

Moderator · Conference Operator

Thank you.

The next question from the line of Surendra Goyal from Citi.

Please go ahead.

Surendra Goyal

In your prepared remarks, you said that FY '26 growth in international business will be better than FY '25.

So just wanted to clarify if this is in constant currency terms, USD terms?

And could you also tell us what the comparable growth in FY '25 was?

Samir Seksaria

It was about 70 basis points, and it is in constant currency terms.

Surendra Goyal

So constant currency basis, 70 basis points and this year will be better than 70 basis points.

Understood.

The second question is with the release of 1% of the workforce; the headcount declined by

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

Hi, thank you for taking my question.

My first question was for clarification.

So, the statement which you made is that TCS intends to become the world's largest AI-led technology services company.

How are you defining that as the largest AI-led technology company, which metrics you are targeting at?

Moderator · Conference Operator

Thank you.

Next question is from the line of Nitin Padmanabhan from Investec.

Please go ahead.

Nitin Padmanbhan

Good evening.

Thank you for the opportunity.

Just a couple of questions.

So, one is in the last quarter on the deal, well we have had very good deals on a consistent basis.

You had alluded to three points that were not leading to better revenue conversion.

One of them being projects starting at a lower pace and the other one being some projects being paused.

How is that sort of evolving at the moment?

K Krithivasan

Nitin, at that point like we probably as I was alluding to, I would say, much improved situation.

The number of deferrals or projects getting paused has been reduced compared to last quarter.

Nitin Padmanabhan

Sure.

So incrementally, we should see better accretion.

At least growth should be in the positive territory here on and you have alluded to that?

K Krithivasan

That is our hope.

Nitin Padmanabhan

Correct.

Any incremental update on, let's say, BFSI or consumer business and Europe, I think last quarter you were a little tepid from

Moderator · Conference Operator

Thank you.

Next question is from the line of Abhishek Kumar from JM Financial.

Please go ahead.

Abhishek Kumar

Hi, good evening.

Two quick questions about the cybersecurity instance, just wanted to check if the issue has now been resolved and the projects you said which couldn't start, have they now started resuming?

Moderator · Conference Operator

Thank you.

Next question is from the line of Vibhor Singhal from Nuvama Equities.

Please go ahead.

Vibhor Singhal

Thanks for taking my question.

So Krithi, just once again, on the AI data center investment.

Given that you mentioned that it's going to be more like a sovereign data center and given the GDPR regulations across the world, is it fair to say that this will have limited synergies with our existing clients and most of the clients that we would be deploying in this data center will be more of India based and that is where we would be looking for any synergies if at all from our current sector?

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Rishi Jhunjhunwala from IIFL.

Please go ahead.

Rishi Jhunjhunwala

Yes, thanks for the opportunity.

So, just harping a little bit more on that AI investment, a couple of reasons that you provide was that the demand in this space is very high and provides a new stream of annuity revenues.

But outside of that, does it put us in any kind of disadvantage versus our peers, if we are not doing this investment or does it put us at an advantage versus other peers on the global revenues that we earn here?

If that is not the case, then I mean if you look at the overall technology spending landscape, then there would be a lot of pockets around software and solutions, where those kinds of investments probably would have been more synergistic to us.

K Krithivasan

Rishi, there are definitely a number of places where we can invest.

We took this place because it creates a synergy with our existing

Moderator · Conference Operator

Ladies and gentlemen, we'll take that as a last question for today.

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

Over to you.

K Krithivasan

Thank you, operator. • In Q2 FY26, our Revenue grew 0.8% sequentially in constant currency, with an operating margin of 25.2% and a net margin of 19.6%.

We saw good growth momentum across most verticals, service lines and geographies this quarter. • International business fuelled growth, along with India and emerging markets performing well. • Our TCV was robust, at $10 billion in Q2, which grew 16% YoY, including a mega deal win, using AI-enabled differentiated solutions. • We reiterate our outlook for FY26 International Revenue growth being better than last year. • TCS will continue to be a key jobs provider in the industry.

Moderator · Conference Operator

Thank you, members of the management.

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.