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Growth Broadens across Verticals; Margin Remains Capped:

TCS delivered inline Q2FY27, with growth broadening across geographies and verticals despite a stillselective demand environment. International revenue grew 1.2% QoQ CC, led by BFSI, Manufacturing and Technology Services. TCV remained healthy at USD 9.6 Bn, excluding Porsche and Best Buy, while annualised AI revenue reached USD 3.1 Bn (>10% of revenue), signalling increasing monetisation of AI-led opportunities. AIpowered engineering and IT operations, alongside vendor consolidation, are supporting share gains in traditional services, although deflationary pricing pressure continues to be key headwind for growth.

Regional markets remain volatile and India growth was impacted by project deferrals. EBITM remained at 24% amid investments in talent, partnerships and M&A, with H2 facing 50 bps of MHP dilution, furlough seasonality and ecosystem investments. Margin would hover around 24% through FY27 and expand gradually thereafter. We maintain our TP at INR 2,170 and value the company at 14x average FY28–29E EPS, with the near-term growth moderation and margin trajectory broadly balanced by healthy TCV, improving AI monetisation and continued market share gain. We retain ‘ADD’ rating.

Modest Revenue Growth, Strong Deal Wins and continued AI Momentum; Margin Broadly in-Line

* TCS has reported revenue of USD 7.6 Bn for Q2FY27, growth of 0.2% QoQ and 2.4% YoY in USD terms (vs CIE estimate of USD 7.6 Bn), while in CC terms, the top-line growth was 0.5% on QoQ basis and 2.8% YoY. In INR terms the revenue stood at INR 731.8 Bn for Q2FY27, up 1.3% QoQ and 11.2% YoY (vs CIE estimate of INR 728.3 Bn).

* EBIT for the quarter stood at INR 175.5 Bn (vs CIE estimate of INR 175.8 Bn), while EBIT margin came in at 24.0% for the quarter (vs. CIE estimate of 24.1%).

* The reported PAT stood at INR 138.8 Bn (vs CIE estimate of INR 135.1 Bn), up 5.3% QoQ and 15.0% YoY.

Demand Improves; AI Monetisation Gains Momentum, but Conversion Remains Key:

Revenue growth was led by BFSI (+2.5% QoQ CC), Manufacturing (+3.1%) and Technology & Services (+3.1%), partly offset by Consumer (-0.7%), ERU (- 0.5%) and Regional & Other (-5.8%). While demand breadth is improving, TCV conversion remains key to recovery. Annualised AI services revenue crossed USD 3.1 Bn (>10% of revenue), with above-company-average margins, driven by AI-native solutions, modernisation and agentic operations. While this supports AI monetisation and differentiation, productivity gains and outcome-based pricing could cannibalise traditional revenue pools. Incremental growth, revenue conversion and margin capture remain key monitorables. We therefore see AI revenue conversion, pricing and margin capture as key monitorables. Despite improving leading indicators, modest reported growth highlights the need to translate TCV and AI demand into incremental revenue

Margin Stable; Recovery Hinges on Revenue Conversion and AI Mix:

TCS’ EBIT margin remained stable at 24.0% despite higher subcontracting, AI-skill bench creation and strategic investments. For H2, MHP consolidation could dilute margin by ~50 bps, partly offset by subcontractor optimisation, operating leverage, bench utilisation and AI pricing. The management retained its 26–28% operating margin target, with Q3 furloughs an additional headwind. We expect margin recovery to be gradual, with revenue conversion and AI deal mix critical to driving operating leverage.

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