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TCS posted a soft operating performance in 1Q. Revenue was flat qoq (0.4% CC), at $7.6bn. EBITM contracted by 130bps qoq to 24%, largely owing to rollout of wage hike. Deal wins were steady at $9.5bn (book-to-bill of 1.2x). AI Services revenue for 1Q stood at ~$650mn (~8.5% of revenue; up 13.6% qoq). Life Sciences and Manufacturing are expected to see a recovery in 2Q, with continued momentum in Technology & Services and BFSI, while Consumer demand is likely to improve as macroeconomic and geopolitical headwinds ease. Per the management, AI is expected to reshape roles rather than drive significant job reductions, with increasing focus on AI-native skills, prompt engineering, and model management (testing/training) capabilities. The mgmt highlighted weaker-than-expected demand in 1Q owing to geopolitical uncertainties and client program deferrals; however, it remains optimistic about a recovery in 2Q, supported by a sizable pent-up tech backlog awaiting execution. Valuation is undemanding; however, a re-rating would require a visible acceleration in revenue growth. We uphold our current view and await stronger growth triggers. We largely retain our earnings estimate, factoring in the 1Q performance; maintain ADD and TP of Rs2,600, at 16x Jun-28E EPS

Results summary

Revenue was flat qoq (0.4% CC) at $7.6bn, largely in line with our estimate. EBITM contracted by ~130bps qoq to 24.0%, slightly below our estimate, resulting from wage hike (-170bps) and targeted investments offset by currency (40bps) and operational efficiency. Order book TCV stood at $9.5bn in 1Q. TCV for North America, BFSI, and the Consumer business was $4.7bn, $2.5bn, and $1.4bn, respectively. Headcount increased 1.6% qoq to 593,798. TCS announced an interim dividend of Rs12/share. What we like: steady performance, uptick in BFSI growth, healthy deal intake. What we do not like: weakness in 4 of the 8 domains, moderation in cash conversion (OCF/EBITDA: ~67%).

Growth led by Tech & Services and BFSI across verticals, and UK, India, and APAC by geography

Growth was led by Regional markets (4% CC qoq), Tech & Services (1.7%), BFSI (1.6%), and CME (0.3%), offset by the decline in Consumer Business (4.0%), Life Sciences and Healthcare (1.0%), ER&U (0.7%), and Manufacturing (0.5%). Among geographies, growth was led by the UK (0.3% CC), India (7.6%), and APAC (1.4%), while North America and Continental Europe declined 0.4% and 0.2%, respectively.

Deal wins steady, with constructs changing and faster execution

Deal TCV came in at $9.5bn, anchored by a net-new $800mn AI-led business transformation mega deal with SKF (sixth mega deal in the last five quarters). Deal activity is seeing a gradual shift toward AI-led transformation, with increasing adoption of outcome-based and transaction-based models, particularly in autonomous GBS. Mega deals are increasingly integrating AI-led optimization and transformation from the outset, accelerating execution timelines.

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