Thank you very much. We will now begin the question-and-answer session. We take our first question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.

I am just doubling down on your initial remark of the confidence of the good CY '26. Maybe if you can contextualize the statement, it a bit more there, it will be helpful. Are you seeing any green shoots of improvement in discretionary or short-cycle projects that is giving you this confidence? Or also, if we have to see a demand recovery in international markets in CY '26, which specific segments do you think should drive this?

Thanks, Sudheer. In Q2, we had called out that the overall demand environment is improving compared to Q1. In Q3, that trend continues. And Aarthi also mentioned about a number of Rapid Builds projects in AI we are doing. Essentially the short-cycle project side, the decision-making is faster based on the ROI. We see a steady increase, and you can see that reflected in our AI revenue that we are reporting, and this is across all industry segments. AI and data are continuing to drive growth for us.

Sure, sir. Some of the key segments like North America and UK across geographies have either declined or were soft in this quarter, so seasonality and furloughs alone explain this? Or is there any other issue along with the normal seasonality that might be playing out here?

It is primarily seasonality here, Sudheer.

All right, sir. Thank you and all the very best.

Thank you.

Thank you. We'll take our next question from the line of Ravi Menon from Macquarie. Please go ahead.

The first is the increase in other expenses within the SG&A. There’s a very sharp increase — about 77% year-on-year and 41% quarter- on-quarter. Could you talk a bit about that? The other expenses are about ₹7.3 billion this quarter. First question is on the AI run rate. It’s a strong number, $1.8 billion. Could you talk a bit about whether this is preparing the customers’ overall landscape for adopting AI, or are these really specific AI use cases? Which are you seeing more of?

First on the other expenses part, the increase both sequentially and Y-o-Y is primarily on account of legal expenses, also from leading from M&A-related ones, the legal fees, etc. Marketing initiatives has increased. A lot of our events, etc. converged into Q3 and also includes CSR initiatives.

Thank you. So some of this will recur , some of it won't recur, right?

Yes.

To answer your question on AI. These AI revenues, like in the Analyst Day, we had reported US$1.5 billion annualized, and this quarter, the number is US$1.8 billion annualized. This includes primarily AI programs across industry value chain. And the data eƯorts that are required to deliver those AI projects. Let’s say, we are doing software engineering, we are using AI for testing. Those are not included. So primarily 2 types of AI programs, AI for business transformation across industry value chains, across verticals. The second is when you use AI for modernization. Those are the 2 buckets I'll call.

Thank you. Next question is from the line of Vibhor Singhal from Nuvama. Please go ahead.

Krithi, you mentioned that the weakness in the BFSI segment was quite seasonal in nature and we had a good amount of business in this quarter and the last quarter as well. Going forward, let's say, next few quarters, do we expect this growth momentum to reflect in the revenue growth itself for BFSI? Similarly, in the retail business, we've seen good pickup. Was the retail business kind of driven by the seasonality in this quarter? Or do you see the growth momentum in the retail business also to sustain in the coming quarters? If you could just answer that. After that, I have a follow-up question.

In BFSI, it's primarily seasonality that impacted us in this quarter. But the overall deal momentum that we are seeing excluding the seasonality, the growth we saw in the accounts, gives us the confidence that BFSI will return to growth. If you notice that before this quarter also for the past few quarters, we had grown in BFSI, so we should return to growth and that should continue. Retail, the seasonality is not the main reason. Again, in retail, we have started seeing growth across all sectors. While there are still some pockets of weakness, like I called out domestic airline is still weak, but international TTH is doing well. Essential in retail is doing well, but there is some softness in fashion and specialty. So excepting those pockets of weakness, we are generally seeing all- round pickup in CBG segment as well.

Just one follow-up on that, you had mentioned that we are looking to report a higher growth in the developed markets this year. I mean do you think we can still achieve that in this year? And do you think this would also be the case going forward in FY '27 over a cycle, just on the developed markets?

Yes, Vibhor like we did tell in the past that our international market, we will continue delivering a higher growth. Now that we only have one quarter left, but it continues to be our aspiration that we would make every eƯort. We saw demand slowly picking up in Q2 that continued in Q3. We are taking every step to ensure that we grow better than FY '25 in FY '26 in the international market.

Thanks a lot, Krithi. Just a couple of questions, for Samir. Sir, just two things. One is we had a very strong margin performance in this quarter despite the 2-month wage hike; in fact we were able to report flat margins. Now given that we have two, three quarters in which there will be no wage hike and no structural headwind per se. Do you believe we are getting closer to that aspiration band of 26% to 28% margins in the coming quarters?

If you look at it from a headwind perspective, Vibhor, apart from the macro uncertainty, I think if you go back to last year, we had an annual intervention cycle coming in Q4 that could be a headwind. Other than that, I think nothing major, except the investments which we have been making and calling out. But irrespective of that, while we will not shy away from making investments, we want to inch closer to our 26% to 28% band and we'll make all eƯorts to climb towards 26%.

That is great to hear. Just last one from my side. Sir, on the labor law provision that we have taken, I know this is going to be an industry-wide practice. In fact, not just industry, I think all of us will be impacted in terms of profits. Could you just speak a bit about the nature of this expense and is this, I mean this is an exceptional item. From next quarter onwards, how does the labor laws impact will be taken care of in the entire P&L?

Basis the guidance received overall on the new labor code, the way they have been implemented, the guidance we have received and factoring in some bit of restructuring. We have made an assessment and made a provision of ₹ 2,128 crores. The nature of it, we have called out in our financial statements, gratuity amounts to about ₹ 1,800 crores and leave liability is balance ₹ 300 crores. This is all past service costs, and hence called as one oƯ. We expect the ongoing impact to be minimal, around 10 to 15 basis points.

Going forward, next quarter onwards we will just take the impact of this of around 10 basis points to 15 basis points above the EBITDA in our normal operating margin, there will be no other exceptional items from Q4?

On the labor code we don't expect any incremental one-oƯ’s. Unless the rules give more clarity and there is something else which needs to be addressed, because the rules came into eƯect, and the guidance came towards the end of December. We have made an assessment and done the provision basis that. And we'll call it out if there is a change in the understanding of our rules.

Thank you so much for taking the questions and wish you all the best.

Thank you, Next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Good evening and Happy New Year. I had few questions. North American market has been relatively soft over the last 12 quarters or so. You think with international coming back, North America will really start contributing and we should start seeing this edging up from a growth perspective? The second is, do you think the restructuring costs are largely over? And then the third one is, do you think we should see any revenue from BSNL this fiscal or it just moves over? Lastly your thoughts on the recent development on credit card rates in the U.S., do you think that in some form, impacts your payment customers and what could be the exposure there?

Nitin, I will take the question on North America, BSNL, Credit card and then invite Sudeep to talk about the restructuring. In North America, like we discussed the market in general, we find that the customers are willing to look at ROI-based decision making in terms of new projects and we also see the decision-making cycle has reduced compared to the past and the momentum we saw in Q2 continued. We are optimistic that North America will return to better growth than before. In terms of revenue from BSNL, the revenue that we recognized this quarter is very similar to the revenue that we got from BSNL last quarter and unless formal final PO is received, we don't expect the revenue pickup in BSNL (for the 2nd phase), but we will keep you posted whenever it happens. On the credit card, there are both positives and negatives, like while there could be some losses the banks may suƯer in terms of interest income, but it also ensures that there is more spend happening because the interest rates are capped. I feel that it will have a two way impact, certain industries will benefit. Even in banking, the new spend can increase while the old spend interest could come down. So it will have a very nuanced or probably multilayered impact, we have to wait and watch. But on net-net basis, we don't see a major impact because of this particular rule that's come in. I'll now invite Sudeep to update you on the restructuring.

Thank you, Krithi. Hi, Nitin. So, as I mentioned, we continue to hire and seek for top talent, both from the lateral market and from the campuses as well. While we are in that journey, what we had announced as part of the restructuring, we continue to look for support people with deployment into future role. Wherever we are not finding success in re-deployment - is where we are releasing the workforce. So, we said we will continue this exercise till the end of this year. And in this quarter, we released approximately 1,800 people with all the due care and compliance to all the laws of the land. And as communicated earlier, we expect it to continue into the next quarter as well. But we are not really going after a number. It's purely a process, we review it. Only if there is a genuine reason if we need to release is when we'll exercise that option.

Perfect. That’s helpful. Thank you so much and all the very best.

Thank you. Next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Hi, good evening. My first question was that you spoke about that you are targeting to improve your international revenue this financial year. Now looking at your book-to-bill ratio over the last 2 years, it has been in the range of 1.3x to 1.5x. This year, it has been largely below 1.3x, are you comfortable that this level of order book can help you continue to see revenue growth improvement beyond fiscal '26 as well? Or you would need to see an improvement in the deal wins?

Kumar, if you look at this year, so far in the first three quarters, our order book is in the range of about US$28 billion to US$29 billion. If this trend continues, we will be somewhere closer to about US$38- 39 billion for the year, which will be one of the highest. We believe this order book will help us in growing in FY '27 as well. We are now quite comfortable, Kumar, with the order book itself. I think as far as international revenue in Q4 is concerned, we are optimistic, and we'll take every step that's required to see we reach the aspiration of having a revenue better than FY '25.

Thanks, Krithi. My second question was on the AI services revenue, which you spoke about is growing pretty strongly on a quarter-on- quarter basis. Can you give some more color on what is driving that growth? You also spoke about that Agentic AI implementation is proceeding cautiously. Why is it so?

I think, Kumar, if you look at the AI revenues, the growth is coming from across verticals and these are business impacting programs that we are delivering for our customers. If you really look at it, I think when GenAI is something we all started talking about sometime late towards 2022 and early 2023. For about 1-1.5 years until about mid-2024, there was a lot of experimentation, PoCs and people were understanding the power of the technology. But if you really look at 2025, I think the adoption in our customer landscape has significantly increased, where we have now shifted from experiment PoCs and pilots to really, ROI- led scaled implementations, and that's what is driving this growth. And Agentic AI getting introduced early in 2025 also created good momentum because traditional AI, Generative AI and Agentic AI, the combination is what is helping us deliver solutions that create value for our customers.

Thanks. Samir, just one clarification on SG&A expense increase, which you called out. What all would be one-time in nature in that? I would assume that legal expenses wouldn't recur from the next quarter onwards, so if you will be able to quantify within that?

The legal expenses has a combination of some ongoing elements also and the legal fees related for the concluded legal case would have been one-time. It would be hair splitting, calling out each line item separately and its impact, but you would expect some other one-oƯs like the CSR provisions, etc, might continue into the next period.

So essentially, the SG&A expense in this quarter largely would be an ongoing expense. Is that a fair way to say that?

Partly, it's a mix of both, but I'm not going to hair split into how much it is recurring or non-recurring. You could say about 10 to 20 basis points is one-time.

Got it. Thanks a lot.

Thank you. Next question is from the line of Keith Bachman from BMO. Please go ahead.

Yes. Thank you very much. I was hoping you could talk about what's the changes in economics on renewals today or currently versus, say, 2 years ago? And what I wanted to understand is, at the time of renewal, what's the price diƯerence on the like-for-like work at the time of renewal? How much more are you incrementally focused on selling incremental services to oƯset the price declines that I think are largely driven by the benefits of AI? But if you could just speak to broadly what renewals look like today versus, say 2 or 3 years ago? Thank you.

Bachman, if you look at the renewal, most of the renewals would bake in some productivity. But that is business as usual, that is I don't think related to AI. Even without AI coming to picture, most of the renewals have some productivity baked in. It could weigh in the range of 10%-15% over a term of the contract. We have seen every time a renewal happens, it increases the scope of operation that we do. So, net-net, you'll find very often when the renewal happens, the top line or the total quantum of revenue doesn't decrease, but the quantum of work that we commit to deliver to our customer, that increases, oƯsetting the top line, because the productivity is achieved by TCS, you don't see a hit in realization, but the quantum or the amount of work we deliver increases. Now with AI coming in, our approach has always been that we proactively go to customers even before the start of the renewal cycle. We go to customer with opportunities to deploy AI and how we can achieve a certain amount of productivity through AI. Once we renew it, at the time of renewal, it embeds AI productivity and very often, as I said, increases the scope of our work as well.

So is your contention that 10% to 15%, you're suggesting that's the same what the renewals the price discounts at time of the renewal, that's where it was 2-3 years ago. You're saying that's a consistent number?

It could vary. I said just to give it as an example. But the point I'm trying to make is there is a productivity, but there is a volume of work that is being delivered that also increases. So by and large, the total value of the contract doesn't change or reduce much, but we end up delivering more volume of work, but at a higher productivity.

The second question I had was similar. As you're bidding for net new work and you're bidding in cost benefits or supply the benefits, if you will, is there more variance allowed in the contracts? What I mean by that is, are you structuring the contracts diƯerently in that you allow for if the cost curves are better, then you allow for some sharing with the clients, if the benefits that you predicted in the contracts aren't as good than the client shares back with you. Is there more flexibility because you're adopting new technology as you're bidding out multiyear contracts?

We have been quite open to that. But at the same time, it's fair to say most contracts assume a fairly aggressive AI productivity to come in and baking the expected productivity at the beginning of the contract itself. But we would be quite open to work with our customers where we are able to get or achieve greater productivity. If you have to share it, we would be quite open. But to be fair, we are not seeing the type of contract where the flexibility is built in within the contract. Most contracts assume a certain productivity over a period of time and are priced accordingly.

All right. That's it for me. Thanks.

Thanks for taking my question. As you have already called out AI revenues of US$1.8 billion, so if you can give some more color in terms of how our pipeline is led by AI? What is the growth in last 9 months in this pipeline? Growth that we see going ahead?

Dhanshree, like we said, we are seeing increased momentum quarter-on-quarter and in Q3, it's the first time we started publishing our annualized AI revenues. In mid-December, this number was US$1.5 billion annualized and quarter closure is US$1.8 billion. We are seeing increased traction, good momentum across our client base and we expect AI revenues to continue to grow with a strong growth rate.

Some color on data center operations, when the actual operations will start favoring the numbers, some cues on the timeline would be helpful.

Dhanshree, what we had called out is, that we would be first announcing an anchor customer and basis the requirements of the anchor customer, we are going to do the build-out. Typically build out would require about 18 months, post which revenue should start ticking in.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments. Over to you.

Thank you, operator. In summary,  The growth momentum we witnessed in Q2FY26 continued in Q3FY26.  In Q3 FY26, our Revenue grew 0.8% sequentially in constant currency, with an operating margin of 25.2% and a net margin of 20%.  Our AI services now generate US$1.8 billion in annualized revenue and is growing at 17.3% QoQ in constant currency.  Our TCV was strong, at US$9.3 billion, including a mega deal win. I would like to conclude by reiterating that we remain steadfast in our ambition to become the world’s largest AI-led technology services company, guided by a comprehensive five-pillar strategy and our investments in becoming a full stack AI services player across infrastructure to intelligence. These coupled with enduring partnerships and disciplined execution position us uniquely to gain leadership in AI. With that, we wrap up our call today. Thank you all for joining us.

Thank you, members of the management. On behalf of TCS, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings.