TCS vs Techm Q2 FY26

TC

TCS

Q2 FY26 · Information Technology

TCS delivered a solid Q2 FY26 with revenue of INR 65,799 crore (+2.4% YoY, +0.8% CC QoQ) and operating margin of 25.2% (+70bps QoQ). Growth was broad-based across verticals and geographies, led by India and emerging markets. Total contract value (TCV) reached $10 billion (+16% YoY), including a mega deal with Tryg Insurance. Management guided FY26 international revenue growth to be better than last year's ~70bps CC. The company announced a major AI strategy pivot, including a subsidiary for a 1 GW sovereign AI data center (phased over 5-7 years, ~$6.5B total) and the acquisition of ListEngage. Key risk: lingering macro uncertainty and client discretionary budget tightness could temper growth momentum.

Guidance read

FY26 international revenue growth better than FY25: Management expects constant currency international revenue growth for FY26 to exceed the ~70bps achieved in FY25. Operating margin aspirational band of 26%-28%: CFO reiterated the goal to return to the aspirational margin band of 26%-28%, with continued improvement expected. AI data center subsidiary with 1 GW capacity over 5-7 years: Board approved creation of a subsidiary to build a sovereign AI data center in India, with capacity up to 1 GW, phased over 5-7 years at ~$1B per 150 MW. Continued workforce release of ~2% mid-senior level: CHRO indicated that the planned release of ~2% of mid-to-senior workforce with skill mismatch is halfway done; further releases may continue.

Risk read

Key risks include Macro uncertainty and discretionary budget tightness — Lingering economic uncertainties keep clients cautious on discretionary spending, which could slow revenue growth.; Cybersecurity incidents at clients causing project delays — Recent cyber attacks on TCS clients led to project start delays, though TCS systems were not compromised.; AI data center investment risk and low ROE — The capital-intensive data center business will have lower ROE than TCS's historical 50%+, though management expects overall ROE to remain benchmark.; Potential deflation from AI productivity gains — AI-driven productivity improvements could reduce revenue per project, though management expects scope expansion to offset..

Promise ledger

Of 2 tracked promises, management 0 met, 0 close, 2 missed.

Tech Mahindra reported Q2 FY26 revenue of INR 13,995 crore, up 5.1% YoY, with PAT of INR 1,194 crore (+28.2% YoY). EBIT margin expanded 108bps to 12.1%, marking the eighth consecutive quarter of improvement. Growth was broad-based across manufacturing, BFSI, and retail, while communications remained soft. Net new deal TCV reached $816 million, up 57% LTM, and the $20M+ client bucket surpassed $1 billion in revenue. Management highlighted steady progress toward the FY27 margin target of 15%, driven by fixed-price productivity and SG&A optimization. AI investments, including the TechMRI platform and participation in India's AI Mission, are positioning the company for future growth. However, macro uncertainty and a muted discretionary spending environment remain headwinds. The second half is expected to be stronger than the first, aided by deal conversions and operational rigor.

Guidance read

Second half of FY26 expected to be better than first half: Management expects improved performance in H2 driven by operational efficiencies and improved demand visibility, despite seasonal furloughs in Q3. EBIT margin target of 15% by FY27 remains intact: Management reiterated commitment to reaching 15% EBIT margin by FY27, with continued margin expansion each quarter. Net new deal TCV expected to approach $1 billion: Management aims to increase quarterly net new deal TCV closer to $1 billion, up from current $816 million, driven by a rich pipeline. Capital allocation policy: return 85%+ of free cash flow to shareholders: Board recommended dividend of INR 15 per share; committed to returning at least 85% of free cash flow to shareholders.

Risk read

Key risks include Macro uncertainty and muted discretionary spending — Management noted that the macro environment remains slow, with no dramatic growth expected next year, which could impact revenue growth.; H1B visa regulation changes — Under 1% of global workforce on H1B visas; potential regulatory changes could increase costs or limit talent availability, though management considers it manageable.; Client concentration and ramp-down risk — A semiconductor client significantly scaled down operations last quarter, impacting revenue; similar events could recur in the $20M+ client bucket.; Communications vertical weakness in Europe — European telecom business faced localized challenges, causing a decline in the communications vertical; recovery expected but uncertain..

Promise ledger

Of 1 tracked promise, management 0 met, 0 close, 1 missed.