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TCS and INFO AR: Gen to a-Gen-tic AI and more

TCS and INFO’s annual reports, despite their comprehensive quarterly disclosures, offer trove of additional data/information. We therefore pored over their latest annual reports to compare and contrast their a) AI-readiness and strategy; b) supply-side interventions (wage/pyramid); c) key subsidiaries’ performance; d) revenue visibility (remaining performance obligation or RPO) to name a few. Both the companies have adopted a platform-led, Agentic AI-driven strategy for AI – INFO with Topaz and TCS with WisdomNext. Myriad use cases indicate adoption is rising. AI-led productivity, along with weaker demand, however, possibly explains shrinking base of employee pyramid, distorting cost structure. Subsidiaries data, especially for INFO, offer few interesting insights. For example, revenue of Infosys Automotive and Mobility GmbH – its subsidiary for Daimler project – declined for the first time (Exhibit 14), indicating project maturity. Perplexingly, it is still loss making. RPO to be recognised into FY26 revenues, though only a part of overall revenues, grew by 5%/7% for TCS/INFO, higher than FY25’s, indicating improved visibility. Finally, TCS’ lower Gross PPE and capex per employee explain its superior ROE (52% vs INFO: 29%). That’s not appreciated enough.

* Gen to a-Gen-tic AI: Both INFO and TCS believe clients are moving from use-cases/singlepurpose based approach to Agentic-AI led transformational approach. INFO and TCS’ have therefore channelled their AI-efforts towards infusing agents in their AI-platforms. INFO has built over 100 agents to improve productivity in areas of code generation, IT Operations, bill-to-cash and quote-to-order. TCS has built over 150 AI agents and catalogued them in its AI platform WisdomNext. Their platform approach allows them to offer cloud/LLM/vendor agnostic capabilities to enterprises to adopt AI at scale.

* Pyramid – inverting? For TCS, share of India’s employees (c.85% of employee base) less than 30 years old declined 250bps to 47.7%, a record low. For INFO, share of junior employees fell 560bps to 35.5%. Share of middle employees (50%) is now 15ppt higher for INFO. Lower growth and hence lower fresher addition – 8% of base in past two years for INFO – has skewed the balance. This has started to distort their cost structure, resulting in 9.6%/6.3% increase in mean remuneration for INFO/TCS.

* Tale of subsidiaries: Subsidiaries revenues are often not a true reflection of their performance, given nuances of revenue attribution. Still, like-for-like changes do hold few insights. Key highlights from INFO’s subsidiaries are as follows – a) Infosys Automotive and mobility Gmbh, subsidiary for Daimler project, reported revenues of USD 418mn (- 8.5% YoY), with a PBT margin of -7.3%; b) Infosys Public Services Inc. USA –a subsidiary catering to government projects – saw a decline of 14% YoY, possibly due to DOGE; c) Infosys Consultng Company’s revenues slowed down, reflecting weaker discretionary spend. For TCS, Diligenta led the growth followed by Japan and APAC subsidiaries.

* Remaining performance obligation – what is in the bag: RPO disclosure provides, in our view, committed revenues of various contracts. These could include a) remaining portion of a fixed price contract; b) pending Annual Technical Services (ATS) or maintenance obligation associated with license sale among others. RPO disclosed by INFO/TCS over the past five years has ranged between 45-55% of annual revenues, closely aligned with FPP share. While these do not span all revenue, trend in RPO could be instructional. INFO reported USD 12.3bn of RPO in FY25, up 13.2% YoY. Of this, 50% will be recognised in revenues in FY26, translating into confirmed revenues of USD 6,234mn, up 7.4% YoY. Corresponding numbers of TCS are: a) RPO – USD 21.8bn, +9.2% YoY; b) PO to be recognised in revenues in FY26: USD 10,034mn, +5.4% YoY.

* TCS’ operational excellence and other tidbits: First the tidbits. TCS purchased goods and services worth USD 887mn from Tejas, likely for BSNL deal. TCS’ discount to contract pricing reduced to 1.4% (from 1.6%), surprising given higher competitive intensity. INFO’s Fixed Price Contract revenue share increased to 58% - highest ever – reflecting rising large deal contribution. Finally, dupont analysis reveals TCS’ high asset turnover (lower capex and gross block/empl) is a key to its superior ROEs.

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