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TCS Results: Data Centre pivot a key highlight

ICICIdirect Research 10 Oct 2025 DISCLAIMER

TCS posted a steady Q2 performance with revenue growth (+0.8% QoQ CC), strong deal wins (TCV at US$10 bn, +16% YoY) & deal pipeline. Adjusted EBIT margin expansion of 70 bps QoQ (ex-one-off restructuring costs) was aided by currency tailwind (+80 bps), pyramid rebalancing (+40 bps) and operational efficiencies (+20bps), partially offset by wage hikes (1 month impact) and higher variable pay (-70 bps).
Management reiterated that international revenue growth is expected to improve in FY26 versus FY25, supported by easing project deferrals and better execution. It also maintained its medium-term margin aspirations of 26–28%
It announced incorporation of a wholly owned subsidiary in India to set up multiple AI and sovereign data centres (a passive colocation data centre with a capacity of up to 1 GW) with an investment of about US$1 billion to set up every 150 MW of capacity which shall amount to a total outlay of ~US$6-7 billion (i.e., ₹55-57k crore) in a phased manner over 5-7 years. The investment will be a mix of equity and debt and the company will also look for external financial partners for this investment. While being RoCE dilutive, it will strengthen TCS’s positioning in emerging AI-led transformation opportunities.
Going ahead, while margin headwinds may persist in Q3 from full-quarter wage hikes, furloughs, and macro uncertainties, the company’s limited H1B exposure, strong cash flows, and rising traction in AI, cloud, and data modernization, is likely to be positive for the sentiments. We have upgraded the stock to BUY with TP of Rs. 3640, valuing it at 24x FY27 P/E.

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