Tata Consultancy Services Ltd (NSE: TCS) Q1 2026 Earnings Call dated Jul. 10, 2025
Corporate Participants:
Nehal Shah — Investor Relations
K. Krithivasan — Chief Executive Officer
Aarthi Subramanian — Executive Director, President and Chief Operating Officer
Samir Seksaria — Chief Financial Officer
Milind Lakkad — Chief Human Resources Officer
Analysts:
Sudheer Guntupalli — Analyst
Kumar Rakesh — Analyst
Ankur Rudra — Analyst
Ravi Menon — Analyst
Abhishek Pathak — Analyst
Nitin Padmanaban — Analyst
Abhishek Gupta — Analyst
Gaurav Rateria — Analyst
Presentation:
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. [Operator Instructions] 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 — Investor Relations
Thank you, operator. Good evening, and welcome, everyone. Thank you for joining us today to discuss TCS’ financial results for the first quarter of fiscal year FY 2026 that ended on June 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 — Chief Executive Officer
Hello, everyone.
Nehal Shah — Investor Relations
Ms. Aarthi Subramanian, Executive Director, President and Chief Operating Officer.
Aarthi Subramanian — Executive Director, President and Chief Operating Officer
Good evening, everyone.
Nehal Shah — Investor Relations
Mr. Samir Seksaria, Chief Financial Officer.
Samir Seksaria — Chief Financial Officer
Hello, everyone.
Nehal Shah — Investor Relations
And Mr. Milind Lakkad, Chief Human Resources Officer.
Milind Lakkad — Chief Human Resources Officer
Hello, everyone.
Nehal Shah — Investor Relations
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 specific revenue or earnings guidance, and anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the second slide of the quarterly fact sheet available on our website and e-mailed out to those who have subscribed to our mailing list.
With that, I would like to turn the call over to Krithi.
K. Krithivasan — Chief Executive Officer
Thank you, Nehal. Again, good day, everyone. During our April 2025 earnings call, we had called out delays in decision-making and project start with respect to discretionary investments. This trend has continued and intensified to some extent in this quarter. Global businesses were disrupted due to conflicts, economic uncertainties, and supply chain issues. We saw cost pressures in our customers causing previously unseen project pauses, deferrals, and decision delays that resulted in less-than-expected revenue conversion.
In this backdrop, our quarterly revenue declined by 3.1% year-on-year in constant currency terms. Our operating margin was 24.5% and the net margin was 20.1%. Our total value of contracts signed in Q1 FY ’26 was $9.4 billion, up 13.2% year-on-year. These headline numbers must also be read in the context of successful completion of a very large strategic program of national importance last quarter.
Looking ahead, enterprises realize the need to invest in being perpetually adaptive and require a dependable partner that can provide them with not only the right capabilities but also the scale and maturity to manage a dynamic environment. TCS aims to be that partner that helps our clients withstand short-term disruptions even while executing their transformation strategy for long-term value creation. In this context, we are very confident of the robustness of the demand as well as the strength of our business model from a medium- to long-term perspective.
I would also like to inform you that this will be Milind’s last earnings call. He has had a stellar and distinguished record of service for 38 years in this industry. Joining TCS as a trainee in 1987, he rose to lead the manufacturing business group and subsequently the CHRO. On behalf of TCS, I would like to thank him for all his contributions.
I’ll now invite Samir and Milind to go over different aspects of our performance during the quarter. I’ll step in later to provide more color on the demand trends we are seeing. Aarthi will further share an update on our services. Over to you, Samir.
Samir Seksaria — Chief Financial Officer
Thank you, Krithi. Good day, everyone. In the first quarter of FY26, our revenue was INR63,437 crores, which is a year-on-year growth of 1.3%. In dollar terms, the revenue was $7,421 million and a year-on-year decline of 1.1%. And in constant currency terms, our revenue declined 3.1%, again, on a Y-o-Y basis.
Our Q1 operating margin stood at 24.5%, reflecting a sequential improvement of 30 basis points. We built up capacity and continued our investments during the quarter with a long-term focus. The demand contraction during the quarter had an impact on our utilization and was offset by lower third-party costs and currency. Higher other income and lower effective tax rate for the quarter helped boost our net income margin to 20.1%. Our EPS grew 6% Y-o-Y.
Our accounts receivable were at 75 days DSO in dollar terms, up five days Y-o-Y. Net cash from operations was $1.5 billion, which is a cash conversion of 100.3% of net income. Free cash flows were at $1.3 billion, and invested funds at the end of the period stood at $5.7 billion.
The Board has recommended an interim dividend of INR11 per share.
With that, I’ll hand over now to Milind.
Milind Lakkad — Chief Human Resources Officer
Thank you, Samir. Our workforce at the end of the first quarter was 613,069. Net addition during the quarter was over 5,000 employees. We have honored all the job offers and will do so for the rest of the year. Better hiring will be recalibrated based on the demand outlook.
We continue to invest significantly in our business to stay relevant to our customers, changing technology needs. In this quarter, our associates invested 50 million hours in building expertise in emerging technologies, enabling them to lead the transformation journey for our customers. It is gratifying to note that TCS now has 114,000 people with higher-order AI skills. Our LTM attrition in IT Services was at 13.8% at the end of Q1, up 50 basis points sequentially.
I will now request Krithi to speak on the various demand drivers during the quarter.
K. Krithivasan — Chief Executive Officer
Thank you, Milind. During the quarter, enterprises remained focused on cost optimization, vendor consolidation, and efficiency-led technology transformation. Discretionary spend continues to remain under heightened scrutiny and pressure. However, enterprises’ focus on scaling AI adoption across applications, workflows, and data platforms remains strong. Our approach at TCS integrates expertise in deploying technology blended with contextual knowledge of enterprise, data, business processes, industry strength, and change management.
You will see our capabilities in action through real-world examples spanning industries and service areas, which we’ll go through with the help of a few customer case studies. First in BFSI. In Americas, BFS clients are cautious with tech investments as they assess the current economic uncertainty. Growth is being driven by rapid advancements in GenAI, cloud adoption, platform modernization, and automation.
Clients are focusing on regulatory readiness, data governance, and cost efficiency through technology rationalization. There is growing demand for integrated digital solutions that enhance customer experience, ensure compliance, and enable scalable operations across banking, capital markets, insurance, wealth, and payment segments.
Banks are actively pursuing legacy and mainframe modernization to streamline operations and improve system resilience. Discretionary spend is under pressure. The softness that we had called out earlier in US insurance continued throughout the quarter. However, we are seeing insurance doing well in Europe. BFS continues to remain cautious in Europe and UK. We believe the current caution in BFS is temporary as there’s a lot of unmet demand.
Moving on to the Consumer Business group. This was one of the most affected sectors in this quarter. Widespread industry challenges resulted in funding delays, project postponements, and delayed milestone completion. However, we continued to work on transformative programs across all industry segments. A leading US specialty retailer partnered with TCS to overhaul its product information ecosystem that is critical for driving sales, forecasting, and data-driven merchandising. This is an initiative of strategic importance that had previously faced significant implementation challenges, including fragmented data ownership and complex system landscape.
Leveraging deep domain and contextual knowledge, TCS designed and implemented an end-to-end solution with a robust SaaS-based product information management platform that’s integrated with multiple legacy systems. TCS established scalable data flows that ensure end-to-end data quality and governance, enable advanced analytics, and empower vendor-led asset management. The transformation delivered a 3 times increase in SKU creation and maintained speed, unlocked significant annual savings by eliminating manual attribution and enrichment efforts, improving time to market, operational efficiency and enhanced customer management.
In the manufacturing sector, although the automotive sector faced significant challenges and reduced spending, the manufacturing vertical as a whole showed minor growth. Amidst the uncertain environment, clients are aiming to lower their overall technology debt and are investing in initiatives intended to prepare the technology infrastructure for future demand.
TCS and Jaguar Land Rover, our long-standing strategic partnership encompassing various aspects of technology, innovation, and sustainability. This collaboration is evident in areas like software-defined vehicles, customer experience under Jaguar TCS racing Formula E team. At the Formula E World Championship, top performance depends on time-critical data analytics. Whether at the racetrack or at the team base, Jaguar team racing engineers need timely access to this data to make informed decisions about car setup and race strategy. Undoubtedly, this is where championships are won or loss.
While Formula E races often take place on temporary street circuits under tight regulations, Jaguar TCS racing can’t often practice on physical circuits or run in-person tests. Regardless, teams must still find ways to develop top-performing cars. We set out to help solve this challenge by enhancing the team’s digital twin technology so that it can run more simulations, generate more data, and validate software.
TCS automotive data science team developed the virtual vehicle validation model, which inspects the digital twin of Jaguar I-TYPE 7 on how to navigate the track based on various inputs. This model runs continuous simulation, saving engineers critical time during race preparation and enabling them to make last-minute changes to the vehicle software in pursuit of performance gains. Having confidence that the simulator results are accurate, enable the team to unlock creativity and innovation as well.
Moving on to Life Sciences and Healthcare. Life Sciences customers are exercising caution. They are focusing on essential business activities with some growth initiatives postponed or their schedules put under review. The pharmaceutical sector is grappling with pricing, supply chain issues, and export risk. Companies are prioritizing R&D, profit margin, and operational efficiency. Leading firms in the US, UK, Europe and Japan are consolidating vendors and business services while leveraging AI.
The recent passage of the big beautiful bill in US includes nearly $1 trillion in Medicaid finding reduction over 10 years, rollbacks to Affordable Care Act and $500 billion in Medicare spending reductions amongst a host of other changes. These changes are expected to severely impact the earnings of Medicaid-focused insurers, hospital operators, diversify Medicare insurers amongst others.
In Healthcare, payers are trying to optimize costs due to rising medical expenses. Pre-authorization delay and claim denials are causing friction with providers. Key priorities are affordability, transparency, simplification, and improved patient experiences. Clients are modernizing core systems, exploring data marketplaces, cyber resilience, and AI in SDLC, though budget constraints hinder approvals. The MedTech industry is witnessing regulatory scrutiny, demand changes, cost pressures, regional consolidation, new business models, and higher customer expectations. This has put pressure on supply chain to cut costs.
Moving on to Energy Resources and Utilities. This vertical faced reduced spending and capital investment due to policy changes and geopolitical tensions. However, we are working on many transformative engagements like rebalancing of supply chain, grid optimization, etc. For a Fortune 500 utility in the US, we are consolidating and transforming their advanced metering infrastructure solution across their operating companies. This major business transformation includes advanced features such as load profiling, forecasting, settlement, and real-time energy consumption management. The system also helps in proactive outage management and provide capabilities for remote operations. The solution will not only transform the customer experience across multiple states in their service territory but will also set up a strong foundation for network analytics and renewable integration.
The Technology and Services industry sustained growth across all markets this quarter. In this quarter, AI has established itself as a fundamental driver of product innovation across all the subsegments under Tech and Services. Enterprises continue to defer business transformation initiatives and prioritize targeted technology transformation that deliver significant operational efficiencies and cost savings.
In the Communication, Media and Information vertical, enterprises are reevaluating their priorities with a strong emphasis on AI and automation, diversification, cost optimization, and vendor consolidation. With subscriber growth plateauing and competition intensifying, AI-driven innovation helps CMI companies rethink business model and diversify revenue streams. With AI, the CMI industry is aiming to transform every stage of the workflow, including enabling strategic decision-making, content generation, and audience personalization.
Foxtel Group, Australia’s leading streaming and subscription television company, partnered with TCS to transform their customer service operations by increasing the consistency and speed of responses to customer queries and addressing the challenge of increasing cost of services. TCS deployed advanced GenAI capabilities powered by leading AI platform model to drive measurable business impact.
The transformation began with a comprehensive verification of the knowledge-based architecture, ensuring information was easily accessible and uploaded. Implementing the AI-powered solution was a game-changer, enabling the automation of conversation summaries and enhancing data security measures. This holistic approach ensures that customer interactions are not only efficient but also secure. TCS played a pivotal role in this transformation, bringing domain and technical expertise, contextual knowledge, and proprietary assets.
By integrating advanced AI capabilities, Foxtel achieved faster response times and higher first call resolution rates, significantly improving the customer experience. Agent productivity saw a notable increase, and customer engagements improved, while the total cost of ownership for Foxtel came down. During the quarter, TCS and Foxtel Group also won the AI Pacesetter Category at the 2025 ISG Paragon Awards powered by ANZ in recognition of this impact.
Moving on to our portfolio of products and platforms. They continue to help us in developing bespoke solutions for our clients. Ignio, our cognitive automation software suite, saw multiple new deal wins. Evolving technological trends in AI, Agentic AI, and GenAI are leading to increased investments in AI-based systems and intelligent automation. These developments are accelerating ignio’s prominence as more customers implement autonomous enterprise solutions. We continue to build on our leadership position in the UK life and pension market with key programs going live on our BFSI platform.
Now Pensions Limited, one of the major workplace pension providers in the UK, offering auto enrollment for its employers and members went live on TCS platform. They’re also leveraging our intelligent experience solutions for all digital and mobile. The program consolidates multiple legacy systems on TCS [indecipherable], leveraging secure real-time seamless integration with Pension Lab, a leading pension aggregator in the UK market, to drive business growth. We have migrated over 100,000 employees and more than 3.3 million policies to our platform.
Lloyds Banking Group has gone live with TCS BaNCS for a wealth administration solution. This is a refreshed offering we have created and is a major milestone for the transfer agency industry with innovation being introduced where legacy systems are the norm today. With strict UK cash regulations, the solution has been designed to have high STP of all banking, reconciliation, and controls, reducing the risk of any breach to the regulator. The design allows operations staff to handle customer requests with one click, improving satisfaction for both customers and staff. Customers receive one consolidated communication and can make a single payment for multiple deals or funds, streamlining the investment process. We expect these go-lives to further expand our position in UK.
TCS iON, our platform for digital assessment, exam administration, and learning has continued impressive performance. We have partnered with prestigious institutes of national importance such as IIT and IIM. This quarter, we released the latest version of TCS MasterCraft augmented with GenAI and Agentic AI. This solution automates the process of modernizing legacy applications, thereby significantly reducing the cost and time required for manual conversions.
The GenAI and Agengic AI enhancements will allow organizations to mine business logic faster and more accurately. The automation driven by the latest version of TCS MasterCraft can save up to 70% in cost and achieve results up to twice as fast as traditional interventions. All the customer case studies we spoke of illustrate the impactful projects we undertake in collaboration with our clients and technology partners. Our solutions are driven by continuous upskilling of our talent, investments in R&D, contextual knowledge of enterprises, and investments in creating products and platforms such as Iignio, TCS BaNCS, TCS ADD, and TCS Cognix. All of them supported by strong partnerships within our technology ecosystem.
Let me conclude by saying that we had a robust deal closures this quarter, and our total value of contracts signed in Q1 of FY26 is $9.4 billion. North America TCV was $4.4 billion, BFSI TCV was $2.5 billion, and Consumer Business Group contributed to $1.6 billion. Our deal pipeline continues to be very healthy and well distributed across verticals and geographies, and that gives us the confidence on our customer-centric strategy. With Aarthi now leading all the service lines, we are broadening our leadership in emerging technologies and aim to bring even more seamless integration across our service offerings.
With that, let me hand over to Aarthi for giving more color on our service offerings.
Aarthi Subramanian — Executive Director, President and Chief Operating Officer
Thank you, Krithi. This is my first quarterly earnings call after I took on the role, and it’s a pleasure to be here with all of you today. I would like to provide some updates on our service line offerings and the impact they have created for our customers during the quarter.
I would like to first begin with AI and data. We are seeing enterprises move beyond small-scale use case-centric pilots to disciplined production-grade rollouts that tie GenAI directly to business outcomes. Customer spend is clustering around three big themes: AI-led business transformation, AI-enabled SDLC IT operations, and data platform modernization that sets the foundation for Agentic AI. Vendor consolidation plays and sovereign AI cloud deployments are starting to point to a maturing AI and data market that now demands security guardrails and observability by default. TCS is leaning into this opportunity with new offerings in Agentic AI and AI infusion in our services. Our investment in TCS WisdomNext, our leading AI platform, is expanding with the addition of Agentic AI capabilities. We continue to scale our workforce on AI and deepen AI and data partnerships across both hyperscalers and native AI and data companies.
I would like to share a couple of examples. Amsure, the New York-based multinational property and casualty insurance company, chose TCS to develop a solution using large language models to extract risk information, generate quotes against the competition, and create a personalized summary. This new solution replaced the previous method for doing the same, which had brokers rekeying a lot of data manually and also reduce the time for quotes extraction and generation from 30 minutes to five minutes. Brokers also benefit from comparison, recommendations, and personalized summary as it reduces the need for manual analysis and comparison to understand the customer quotation.
This innovative solution received the Celent Model Insurer 2025 award in the customer experience transformation category. TCS is collaborating with Owens Corning to co-develop GenAI-powered solutions that enhance knowledge search and enable intelligent automation. These efforts are aimed at empowering employees with faster access to relevant information, streamlining routine tasks, and improving decision-making. By reducing manual effort and supporting greater efficiency, the partnership is helping build a foundation for a more agile, responsive operation without disrupting existing business processes.
Moving on, I would like to share a couple of highlights of marquee engagements on the leading hyperscaler’s public cloud platform. TCS helped a leading electronics retailer in the US to relaunch the midnight store opening model and successfully completed a gaming product launch within a very short window. TCS leveraged its peak season framework to plan, forecast, and demand, and implement cloud-based real-time monitoring of the traction traffic and ensure stability of the store operation. The TCS solution helped open more than 1,000 stores across Americas at midnight to drive additional sales of more than 100,000 units within two hours, resulting in substantial incremental revenue for the retailer.
Enterprise Solutions continues to be an area of focus for our customers. Clients are increasingly investing in streamlining their business workflows and modernizing their digital core by adopting AI-powered SaaS platform. I would like to share a few examples. An American multinational energy conglomerate chose TCS to help embark on a commercial transformation journey to establish new business models. This included modernizing their existing commercial platform to introduce subscription-based models as well as deliver enhanced customer experience and reduce technical debt. TCS designed and modernized their current commercial platform with the implementation of a robust subscription management system, leveraging leading SaaS-based CRM and CPQ platforms. Expected business outcomes include a 70% reduction in cycle time in the lead to cash cycle and a 20% increase in customer satisfaction.
A large European pharmaceutical and agrochemical company partnered with TCS to redesign and harmonize their end-to-end processes and create a resilient backbone across their businesses, leveraging a leading ERP platform. As part of a transformation across all the clients’ businesses with a view to create a single source of truth for their downstream analytics in order to achieve increased productivity, improve time to market and reduce inventory. This is a multi-country, multiyear program, of which the pilot country go-live went very successfully this quarter.
All of us know organizations are prioritizing cybersecurity to protect sensitive customer data, ensure trust, and safeguard brand reputation. This quarter, the focus of our customers has been on identity and access management, managed detection and response, and governance, risk, and compliance services. We are also seeing increased traction for enterprise attack service management, cloud security, data security, and network security.
For a leading transport organization in Europe, we recommended information security and IT governance practices for AI assets against various industry standards, including the EU AI Act regulatory requirement, thereby enabling the customers’ organization to establish revised security governance and controls.
We also provided strategic recommendations for a leading global biopharmaceutical major aimed at maturing identity and access management practices towards industry-leading standards, enhancing the robustness and efficiency of IM controls. By adopting AI-powered threat detection, secure transaction frameworks, and a robust compliance solution framework, businesses are strengthening their defenses against evolving threats while maintaining operational integrity and customer confidence.
The last service line I would like to talk about is the TCS Interactive. During Q1, businesses focused on operational excellence and innovation, harnessing data and AI for better performance. TCS Interactive enhanced customer experience and marketing through creative engineering powered by AI.
In Q1, we successfully executed a precision marketing campaign for the aftersales division of a global automotive OEM. Leveraging our AI-powered TwinX digital twin platform, we simulated over 100,000 campaign variants, systematically filtering out low-performing strategies and replacing conventional spray-and-pray e-mails with data-driven personalized targeting. To rigorously validate the platform recommendations, we conducted a randomized controlled trial comparing outcomes between TwinX-driven customer groups and traditional approaches.
Within just one month, the pilot delivered a statistically verified 5 times increase in dealer visits and 2 times increase in service and parts revenue. Building upon these robust outcomes, we are now collaborating with the clients to embed TwinX into subsequent service campaign cycle.
With that, I would like to open the line for further questions.
Questions and Answers:
Aarthi Subramanian
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.
Sudheer Guntupalli
Hi, team. Thanks for the opportunity. Quickly, just a couple of questions. So apart from the BSNL deal, is there any other client-specific situations you might be going through in any vertical or geography?
K. Krithivasan
In which geography, Sudheer?
Sudheer Guntupalli
No. In general, in any vertical or geography. Apart from the BSNL deal, are you seeing any other client-specific situation?
K. Krithivasan
No, there is no specific client-specific situation, Sudheer.
Sudheer Guntupalli
Okay, sir. And just some clarification on your comment in the press release. Are you still reiterating that FY26 will be better than FY25 at the overall company level or more so you’re talking about the core markets?
K. Krithivasan
Sudheer, at this time, we are confident that the international market would do better in FY26 than FY25. However, it is our aspiration to continue to drive growth in other — overall growth as well. But it is a high bar to cross, but we work towards that.
Sudheer Guntupalli
Understood, sir. And last question from my end. So you mentioned that by July end, probably we’ll see some clarity and pent-up demand. So from the time that US started announcing the trade deals with major trading partners like China, UK, etc., are you seeing that the peak of the uncertainty is already behind and some amount of improvement in the client decision-making process?
K. Krithivasan
We have not started seeing that so far, Sudheer. Because, as you know, like even with China, they have a framework deal, like the actual deal and tariffs are not being announced. And my guess is that until most of the trade deals are announced, there will be this lack of clarity.
Sudheer Guntupalli
Got it, sir. Thank you so much.
Operator
Thank you. We’ll take our next question from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Kumar Rakesh
HI, good evening, and thank you for taking my questions. Welcome, Aarthi, to the TCS team. My best wishes. My first question was it appears like decision-making, which you spoke about deteriorated towards the end of the quarter. So what are the risks to the September quarter? What I’m trying to understand is all the project delays and the pauses which happened during the quarter, is it fully reflected in the number which we have reported or there’s more to come into the September quarter as well?
K. Krithivasan
See, like if there are no further — because whatever the delays that we had have been to a great extent factored into our Q1 numbers. Of course, there will be some small residual effect in Q2 as well. And if there are no further delays, Q2 should be at least better than Q1, but we need to wait and watch based on what happens in the market.
Kumar Rakesh
My second question was on margin. So before we entered with the BSNL deal, our margin was trending about 25%, 26% at EBIT level. And understandably after that, the margin came down. And now we have exited from the BSNL deal, but our margin is below the level where it was prior to BSNL deal. Between this period, you have lowered your SG&A expenses. I would imagine that your employee pyramid also would have improved. You have spoken about that how productivity has improved over the last one year and pricing also seems to be stable. So what is pulling down your margin compared to where it was before the BSNL deal?
Samir Seksaria
So a good comparison would be the year-on-year margin. And yes, it’s 20 basis points down on a year-on-year basis. Through the year, like we have called out on the quarterly basis also, we have continued to make investments in people like we had called out in Q4. And overall, the investments which are required for long-term growth in this quarter as well, we invested in capacity. We continued our investments, and that is what is reflecting into it. Having said that, if you look at it, the capacity versus the demand contraction mismatch leads to carrying excess capacity or additional capacity, which should help us in our future demand. So going forward, we should be able to further tighten our operating leverage. And Kumar, if you remember, last quarter, we had said that if uncertainty continues, we might have impact — lower operating leverage.
K. Krithivasan
Leverage. And Kumar, if you remember, last quarter, we had said that if uncertainty continues, we might have impact — lower operating leverage.
Kumar Rakesh
Thanks, Amit, for that. Just one clarification on the international revenue to be similar to last year, which you have spoken about. Is that in USD terms you’re talking about or constant currency? Because on a full-year basis, we’ll have a sizable cross-currency impact.
Samir Seksaria
No, constant currency terms. Like-to-like, the national revenue to international revenue, constant currency terms.
Kumar Rakesh
Got it. Great. Thanks a lot. That’s all from my side.
Operator
Thank you. We’ll take our next question from the line of Ankur Rudra from JPMorgan. Please go ahead.
Ankur Rudra
Hi, thank you. And the first question is in terms of the weakness you’ve seen across a range of industries, and you did highlight it to do with the trade-affected sectors and geopolitics in general. Could you also mention if there’s any kind of — I wouldn’t say pricing pressure, but any kind of out-of-turn demand for productivity pass-through that you may be seeing across industries, perhaps more because of the current demand environment?
K. Krithivasan
One, Ankur, pricing has been reasonably stable at an overall level. But if you ask like is there any demand on productivity, there are instances where large deals coming up. There is a demand for productivity either — we don’t see much coming as a pure discount, but coming as AI-infused productivity or generic — otherwise also normal productivity. We do see demand coming for that. But it is not industry-specific, I would say more based on the size of the deal or the tenure of the deal.
Ankur Rudra
Will this impact the revenue conversion from the signings because we’ve had our book-to-bill at about 1.3 for a while, but revenues just haven’t picked up. I understand some of it is more near-term because of the recent trade uncertainties. But do you think AI-infused productivity pass-throughs might impact the revenue conversion we might have in the medium term?
K. Krithivasan
So revenue conversion from signing is not impacted because of the productivity. Because usually, the productivity is given at the time of signing. So once we sign, we don’t see demands on productivity during the term of the deal normally. If at all, it happens to be very, very rare. But we are giving AI-increased productivity, but it’s based on the — when we sign the deal itself.
Ankur Rudra
Okay. Thank you for the clarification. Could you talk a bit about how the pipeline replenishment is going on? I understand in the near term, there’s been some deferrals and delays. But in terms of overall pipeline formation, how is that progressing?
K. Krithivasan
Ankur, the overall pipeline has remained quite strong. See, we measure it in terms of whether the pipeline from multiple industry verticals as well as geographies. On both dimensions, the pipeline has remained strong. We’ve been able to replenish all the deal closures that happened in Q1.
Ankur Rudra
Okay. Just last question on margins. You did highlight that you’re investing in talent, which is why margins haven’t picked up despite the BSNL ramp down. Now you have a new BSNL contract that will be ramping up perhaps from the next quarter onwards. Isn’t there going to be a significant headwind on margins? How should the margin trajectory be for the rest of the year? Are there any levers you might pull to hold your margins here?
Samir Seksaria
Yeah. So Ankur, like I said, we invested into capacity, anticipating growth this quarter, while we saw a demand contraction, and we are adding capacity. And we will focus on — so in terms of levers, we will focus on improving our operating leverage into Q2. And the key levers would be on improving our utilization, which took a hit this quarter, improving our productivity and focus on pyramid. These would be the levers. As you rightly called out, from a headwind perspective, as we start delivering the second phase of the order, the revenue mix might get slightly impacted. But overall, as a portfolio, we’ll look towards improving margins from here.
Ankur Rudra
And just as a quick follow-up. How much of the utilization improvement is dependent on revenue growth on the international business?
Samir Seksaria
How much of the utilization — so this quarter, the international business saw a degrowth. It was 50 basis points degrowth versus — if you see, we have added people through the quarter.
Ankur Rudra
I get it. I was asking about second quarter or second or third quarter for you to be able to improve utilizations or optimize that? Isn’t that growth dependent?
Samir Seksaria
We would want to drive revenue growth, but we will look at optimization because there is capacity which has built up into the system. So we will not leave demand on the table, but we’ll also look towards optimization.
Ankur Rudra
Okay. Appreciate it. Thank you and best of luck.
K. Krithivasan
Thank you, Ankur.
Operator
Thank you. We’ll take our next question from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon
Great, thank you for the opportunity. Samir, it looks like there has been significant hiring probably at the mid and senior levels because I see that despite the BSNL contract pass-through costs going down, our direct costs have not gone down as much. Would that interpretation be right?
Samir Seksaria
Sorry, can you repeat the question, the early part of the question?
Ravi Menon
Yes. Sorry, I’ve come with a bad flu. So I was asking, there has been significant mid and senior level hiring because your direct costs have not gone down much in proportion to the BSNL pass-through costs.
Samir Seksaria
We haven’t called out whether — I mean our hiring has been across and that [indecipherable].
Ravi Menon
Is that — I can repeat that one more time. I was just saying that with the BSNL pass-through cost, we would have expected to see a lot more decline in the direct cost. But it looks like employee numbers are not up too much, but I think we’ve probably done a lot more mid and senior level hiring apart from the junior level hiring that we do normally.
Samir Seksaria
So Ravi, so you would see a 70 basis points decline or positive impact because of lower third-party expenses. And a similar like-to-like for employee costs. And this includes, as you rightly called out, not just the hiring, we have given additional…
Ravi Menon
Okay. Right. And BFSI [indecipherable] seen a slight decline Q-o-Q. This is, I’d say, kind of resets the momentum that we had seen beginning of last year. But BaNCS have actually been reporting good results. Any positive signs that you’re seeing from BaNCS customers now? Or this is expected to continue?
K. Krithivasan
No, see, this decline is coming from some of the — actually really like good positive side of it is BFSI North America and BFSI UK have a marginal growth. The decline came from BFSI in Europe, that’s also more driven by completion of a large engagement that we get taken. But otherwise, structurally, yes, there is some amount of delay, but I think North America and Europe, UK, particularly in BFSI are continuing their growth path.
Ravi Menon
One last question. On the high-tech side, that’s where we had seen the spending cut start. Now that seems to be trending up. And this is where we’ve also seen some of your peers have to pass on significant productivity improvements. Looks like we are not seeing any such demands, right?
K. Krithivasan
By and large, we are seeing a growth in excepting one or two clients. We are seeing strong growth in the high-tech segment.
Ravi Menon
All right. Thanks so much and best of luck.
Operator
Thank you. We’ll take our next question from the line of Abhishek Pathak from Motilal Oswal. Please go ahead.
Abhishek Pathak
Yeah, hi. Thank you for the opportunity. So the first question was around the new BSNL order we received in May. When do we expect this to ramp up? I mean, is this going to be a one shot ramp-up in 2Q and then ramp down in the next quarter? That’s the first question. And the second question is around margins again. I understand that we are carrying excess capacity. But considering we have attrition trending upwards of 13%, why would we carry this capacity? I mean, do we expect a materially better H2 with regards to growth in anticipation of which we are holding this capacity? Because our cost of revenues, the employee costs at 47.6% is probably at an all-time high. And considering we will have BSNL headwinds coming in 2Q as well as a potential wage hike, just trying to understand how much of this will be offset by the operating leverage that we are expecting. So those were the two questions. Thank you.
Samir Seksaria
Okay. Abhishek, first, on the BSNL deal, we have just received an advanced purchase order. So this is not in the TCV yet. We are awaiting circle-wise POs. Once we get it, then the execution starts. Once the circle-wise POs are available, you can expect execution on a similar trajectory to the one we delivered on the 100,000 [indecipherable].
Coming to margins. Your question was in terms of why are we — is it in anticipation of demand? We added people in Q1 in anticipation of what we want to service in Q1. And what happened through the Q1 was a reduction in — or contraction in demand. That’s where we carried that excess capacity. So we preplanned it, but it did not — Q1 did not plan out as we had planned for.
Abhishek Pathak
Understood. So just to sort of follow up, our employee costs are, as I was mentioning, almost at an all-time high. So as growth picks up, we expect that to materially trend downwards towards the 45% range, let’s say, over the next two, three quarters, that’s where we should be expecting those gains to come from?
Samir Seksaria
So two clarifications I’d like to do, Abhishek. One is if you are comparing sequentially Q4 versus Q1, the employee cost as a percentage of revenue might not be directly comparable because the revenue mix is different. There was a significant third-party component sitting in the revenue. Having said that, your question in terms of current revenues, our employee cost at 47%, should we be trying to optimize it? Yes, we will look towards optimizing that and bringing that percentage of — as a revenue downwards.
Abhishek Pathak
Understood. Thank you.
Samir Seksaria
Thank you.
Operator
Thank you. We’ll take our next question from the line of Nitin Padmanaban from Investec. Please go ahead.
Nitin Padmanaban
Yeah, hi, good evening. Thank you for the opportunity. You sounded pretty cautious on BFSI overall in the commentary. But if I look at the deal wins. On a trailing 12 months, BFSI deal wins seem to be up 12%. So if you could just help contextualize, are you seeing any rescoping downwards or any such thing? Or it was just a broader comment?
K. Krithivasan
Like see, like every other industry, Nitin, there are some places where there is a project pause or scope reduction. But otherwise, still we are continuing quite positive in the medium to long term on the BFSI based on, like you rightly pointed out, the order book closures in the last year. But there are instances where there is a delay or the scope reduction that has also come up.
Nitin Padmanaban
All right. So just to understand, on a sequential basis, last quarter versus this quarter, would you characterize that the demand is actually, at least from an environment perspective, has got worse or it is the same for BFSI specifically and across the board as well?
K. Krithivasan
I think if you look at a revenue basis, you can see that our revenue has a overall drop, but there’s a very minor growth in, as I mentioned before, in North America and UK, but it’s a very minor growth. So it is, I would say, to some extent, geography-specific. Like North America and Europe demand in BFSI has remained stable. And Europe, we have seen a contraction. But if you take it from a TCV perspective, we don’t want to get a quarter-on-quarter comparison on TCV because it tends to be lumpy, like some quarters, you sign very big deals and some deal closures also happen towards the end of the quarter. So we don’t want to go by a quarter-on-quarter TCV comparison.
Nitin Padmanaban
Got it. But just from a pure — because there is a dichotomy, right? Our deal wins over the last three quarters, including this one, has been pretty decent actually. On one hand, the deal wins are decent. You seem to have a good pipeline. But on the other hand, we seem to be seeing maybe the rescoping and the negative surprises on demand like we saw this quarter. So from that perspective, what exactly — how would you sort of explain this? Because people seem to be signing, but they don’t seem to be executing?
K. Krithivasan
Nitin, like what’s happening in some of the deals where the clients decide that they can reprioritize or — I was explaining in our deal scope, I was explaining in the earlier press meet, there was one particular large client where they decided that maybe the particular work can be done, they can delay the work or extend the period over which the work can be done and ramp down the number of people that were engaged. So here, the deal was neither canceled nor paused, but the duration of the deal was increased to give them more time to manage their spend. So there are some places where we find the projects have started, but started on a lower pace. And there are some places where the projects are paused for a duration. So you see a combination of all these things, which together bring this scenario of overall deal signings are okay, pipeline is okay, but the immediate quarter revenue numbers are not in sync with what we should be expecting.
Nitin Padmanaban
Got it. Just one last clarification from my end. For the — you are actually currently assuming that the international business should be better in the following quarter. And BSNL, it will take time until the POs come through for the actual execution to take place. Those two are a fair understanding?
Samir Seksaria
Nitin, as you know, we don’t give any specific guidance. But on the international revenue part, we are more optimistic on in the coming quarters. And what is the other question?
Nitin Padmanaban
Got it, got it. Thank you so much and all the very best.
Operator
Thank you. Next question is from the line of Abhishek Gupta from Axis Asset Management. Please go ahead.
Abhishek Gupta
Hello. Thank you so much, sir, for taking my question. Sir, mostly my question is like on the North America side, if I take the last 12 quarters CQGR, it seems to be kind of flat to slightly negative. So North America being one of the biggest markets, like where are we losing in this market? And why is it not growing in absolute basis for us?
K. Krithivasan
Abhishek, I will not call losing any market…
Operator
Abhishek, sorry to interrupt. Abhishek, can you please mute your line? There’s background disturbance on your line. Thank you. Sir, please go ahead.
K. Krithivasan
Abhishek, I’ll not characterize it as losing any market share in North America. For starters, we are participating almost in all major engagements. And we are also winning our fair share, and that is consistent or improving. But overall, as we explained, while we are winning, there are instances where you have project delays or ramp down, which is causing the growth to be offset. So that’s what the end result you see. So I don’t think that we are actually losing anything in North America.
Abhishek Gupta
Got it, sir. And sir, lastly from my side is like if I look at your client metrics, there seems to be two clients in size has gone down from $100 million bucket. So that’s — is it a concerning point for as an investor? Or how do you look at the metric?
K. Krithivasan
So Abhishek, whenever there is a revenue reduction, it’s concerning. So we are worried. But at the same time, it need not be — while the client could be — for instance, we are measuring it based on last 12 months revenue — so if the particular client is in the borderline or, let’s say, $101 million. And because of this overall reduction in revenue, the client moves from $101 million to even $99.5 million, we’ll no longer count that particular customer as a $100 million client. So it’s a concern, but do we see — is it something that you worry about? I will not because once the growth returns, these customers will be back on to the $100 million plus range. And there are some cases, even because of the cross-currency movement also, customers move back and forth. And there in the borderline case, they may move back and forth between $100 million above or below because it is…
Abhishek Gupta
Got it, sir. That’s it from my side, sir. Thank you so much.
Operator
Thank you. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Gaurav Rateria
Hi, thanks for taking my question. My first question is trying to understand the investments that we talked about on creating capacity, as well as on building a talent pool. Is there some specific hiring going on that is upfront, getting the cost? And that is why the employee cost in absolute terms is up by $150 million, while the number of employees have not increased significantly. Just trying to understand why there is a big jump in employee costs in the last two quarters, whereas our international revenues have largely remained flat?
Samir Seksaria
Gaurav, as I clarified, it is not just adding people. We have given higher QE as well this quarter. Last quarter, we had called out about tactical interventions, which was in terms of promotions.
Gaurav Rateria
Got it. My second question is on the conversations that we are having at the time of renewals. Have you seen more conversations around infusing the generative AI technology on the renewals? And where would we be in our journey of taking this technology to our top 100 clients, let’s say, have we already reached out to our top 100 clients and trying to proactively use this technology and infuse that in all our existing work package? Just trying to understand where are we in the journey.
K. Krithivasan
Gaurav, you’re right. Whenever there is a renewal, there is — we go back to them with some of the specific AI-infused solutions. But to be honest, we don’t wait to infuse AI in further renewal in most of our clients. Wherever we see an opportunity, the AI-infused solution can give better productivity and better outcome for our customers. We proactively do that. And we do it in almost all kinds, whether it’s a cost optimization program or it is a transformation program. Whenever we look for the opportunity, we look for it in every phase of the project and every type of project.
Gaurav Rateria
Got it. Last question, Krithi, on Agentic AI solution. How are the contracts structured with the clients? Is it largely in the form of fixed price projects? Or is it also being sold at some license fee? Just trying to understand how are we trying to monetize our solutions around the Agentic AI?
K. Krithivasan
This is an evolving space. What we find is there are some — we will see multiple opportunities. There are some that we do based on the outcome. There are some customers that expect that this is better to do it on T&M because as it is evolving, they also want to see how the results are — they’re able to benefit from the results. So they want to do it on T&M and then after a period of time, move towards a fixed price model. So we are seeing both options here, Gaurav.
Gaurav Rateria
Thank you.
Operator
Thank you. Ladies and gentlemen, we’ll take that as the last question for today. I now hand the conference over to the management for closing comments. Over to you.
K. Krithivasan
Thank you, operator. In Q1 FY26, our revenue declined by 3.1% year-on-year in constant currency with an operating margin of 24.5% and a net margin of 20.1%. Our TCV was robust at $9.4 billion in Q1. We are closely monitoring development worldwide and remain committed to maintaining strong client relationships, positioning ourselves as a strategic partner. I would like to express my gratitude to all TCSers for their hard work and unwavering dedication in realizing both their own potential and that of the company.
With that, we wrap up our call today. Thank you all for joining us. Thank you.
Operator
[Operator Closing Remarks]