TCS Q4 Call Highlights: Deferred Wage Hikes, Margins Under Pressure & Uneven Global Growth!

Tata Consultancy Services, a leading global IT services, consulting, and business solutions company, in its Q4 earnings call highlighted a margin decline attributed to planned promotions costing 100 basis points, while expressing optimism about FY26 outperforming FY25 despite current booking declines due to strong TCV momentum. Management explained the decision to defer wage hikes amid economic uncertainty while maintaining normal promotion cycles. The company’s AI strategy focuses on implementations that help win larger deals rather than causing revenue deflation, with over one-third of client engagements now utilizing AI. Management noted potential margin headwinds for FY26 if current market uncertainties persist.

TCS reported Q4FY25 results below market expectations, with net profit declining 1.69% year-on-year and revenue growing 5.3% amid global economic uncertainty. Despite these challenges, the company achieved several significant milestones; including crossing the $30 billion annual revenue mark with FY25 revenue increasing approximately 6% and full-year profit growing 5.76%. TCS secured record deal wins with total contract value reaching $12.2 billion, up 19.6% from the previous quarter, while maintaining a 24.2% operating margin. Performance varied significantly across sectors, with regional markets growing 22.5% year-on-year while communications declined 9.8%. Business was particularly affected in hospitality, automotive, and retail sectors due to tariff discussions. The company onboarded 42,000 trainees in FY25, deferred employee salary hikes citing macroeconomic uncertainty, and reported rising attrition rates of 13.3%.

Continue Reading: Unearth the Vital Insights from Tata Consultancy Services’ Earnings Call!

Financial/Operational Metrics:

• Revenue: INR64,479 crore, up 5.3% YoY (2.5% in constant currency).
• Operating Margin: 24.2%, down from 24.3% YoY.
• Net Income: INR12,224 crore, down 1.7% YoY.
• EPS: INR33.79, down 1.68% YoY.
• LTM IT Services Attrition Rate: 13.3%

Top Performing Markets (YoY CC growth):

• India: 33%.
• Middle East & Africa: 13.2%.
• Asia Pacific: 6.4%.
• Latin America: 4.3%.

 

Analyst Crossfire:

• Margin Outlook for FY’26, Immigration and Hiring Strategy (Vibhor Singhal – Nuvama): Margin improvement expected in FY ’26 with revenue growth, driven by operating leverage, pyramid productivity, and realization. No changes needed despite anti-immigration policies, as global hiring model and improved H1B ratios ensure business resilience (Samir Seksaria – CFO, Krithivasan – CEO).

 

• AI Integration in Projects & Talent Strategy for AI (Gaurav Rateria – Morgan Stanley)? Over one-third of client engagements leverage AI for productivity, particularly in software engineering, as a standard expectation in new and renewing projects. Digital hires increased to 40% from 17% last year, with 50% of lateral hires focused on high-end skills like AI engineering (Krithivasan – CEO).

 

• TCV Momentum and Deal Mix, Pipeline and TCV Outlook (Kumar Rakesh – BNP Paribas)? Higher TCV in Q3 and Q4 due to more deal closures, with no significant change in discretionary vs. non-discretionary or renewal vs. new deal mix. Strong and steadily increasing pipeline supports confidence in future TCV, though quarterly fluctuations depend on deal timing (Krithivasan – CEO).

 

• Promotion Cycle & Future Growth Areas (Yogesh Agarwal – HSBC)? Promotions were part of the normal cycle, not unplanned, with increments also given, unlike many peers. AI for business and tech transformations (cloud, legacy infrastructure) are expected to drive growth in 1-2 years once macro uncertainty clears (Krithivasan – CEO).

 

• Deal Mix Stability, Promotion and Wage Hike Context (Sudheer Guntupalli – Kotak, Ravi Menon – Macquarie): No significant shift in renewals vs. new deals or cost optimization vs. discretionary programs compared to the prior quarter. Promotions were planned, not delayed, with wage hikes for FY ’26 under review due to uncertainty (Samir Seksaria – CFO, Krithivasan – CEO).

 

• Hiring Focus & FY ’26 Growth Scope (Ravi Menon – Macquarie, Ankur Rudra – JPMorgan)? Campus hiring continues as planned, with no significant lateral hiring spike impacting costs. International business expected to be stronger in FY ’26, with domestic revenue replacement opportunities (K. Krithivasan – CEO, Samir Seksaria – CFO).

 

• AI for IT and Business Dynamics & FY ’26 Margin Headwinds (Apurva Prasad – Franklin Templeton): AI for IT drives market share gains, not deflation; AI for business adds net-positive revenue, with projects mostly small to medium. Potential margin pressures from lower operating leverage due to demand delays and reduced currency benefits (Krithivasan – CEO).