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TCS Q1FY26 Result Update: Weak revenue print; near term uncertainty to weigh

ICICIdirect Research 11 Jul 2025 DISCLAIMER

TCS Q1 revenue at US$7.42 bn, was down 3.3% QoQ and 3.1% YoY in CC terms. Adjusted for the BSNL ramp-down, which alone contributed to a 2.8% QoQ CC impact, international revenue declined 0.5% QoQ owing to cautious discretionary spend by clients.

EBIT margins saw a 30 bps QoQ uptick, aided by third-party cost optimization and currency gains.

Vertical wise, BFSI & Consumer verticals were weighed down by tariff-led uncertainties, while auto segment within Manufacturing faced continued global headwinds.

TCV stood at US$9.4 bn, broadly in line with the trailing four-quarter average. While deal TCV has been strong for last three quarters, revenue growth continues to be impacted due to re-scoping, delay in ramp-ups and elongation in deal tenure. Notably, on the GenAI/Agentic AI front there has been a shift in client behaviour as they pivot from exploratory and use case-based approach to a ROI led scaling of AI.

The company added ~5k employees during the quarter in anticipation of higher demand due to ramp-up of existing deal TCV, which likely got deferred or delayed in Q1FY26. Attrition too inched up to 13.8%—marginally above the guided comfort range of 11-13%.

Q1 reflected intensified trends of project deferrals, reduced scopes, and extended decision-making cycles, leading to weaker-than-expected revenues. Amidst the same, positives this quarter were healthy deal TCV, steady traction in GenAI-led engagements and management reiteration on improved international revenue trajectory in FY26 vs FY25. However, near-term visibility remains muted with growth recovery timing being uncertain and hinging on macro clarity. Pipeline conversion and execution will be critical monitorables going forward which would be a function of favorable macroeconomic and geopolitical environment. We have now turned neutral assigning a HOLD rating on the company with a TP of ₹3,650.

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