Tata Consultancy Services (TCS IN) – Q2FY26 Result Update – Modest Recovery & Margin Expansion, AI Pivot Underway… – BUY
Published on 10 Oct 2025
The quarterly performance exceeded our estimates, revenues and margins were up +0.8% CC QoQ and 70bps QoQ, respectively. The growth was broad-based across verticals and regions; international business was up 0.6% QoQ CC (vs declined ~0.5% QoQ LQ). However, the on-ground demand remains unchanged, the smaller deals and discretionary spends continue to see a pullback. Despite this slowdown, the company accelerated its AI investments strategies with senior leader hirings and powering AI into multiple offerings and service lines. With this AI theme, the company is further doubling-down on building Infrastructure with 1GW capacity AI Datacenter in India. We believe the investment is capturing the relevant theme around building AI Infrastructure and deepening its client relations with Hyperscalers and Tech Partners. The overall Capex seems to be heavy (USD 5-7bn); however, the concrete structure and vendor participation is yet to be decided. On the margins, we might see similar headcount trimming exercise carried out in H2, hence we are revising FY26E/FY27E/FY28E margins up by 40bps/30bps/30bps, while keeping the revenue growth unchanged. We assign 23x to Sep’27 EPS that translates a TP of 3,800. Maintain BUY.
