The share price of Tata Consultancy Services is in focus this morning. All eyes are on the company’s 1GW data centre plans and the mismatch in terms of workforce restructuring and layoffs. Around 20,000 headcount has been reduced, citing skill and ability mismatch, and this process will continue throughout the year. What’s a bigger concern is, of course, the TCS margins going forward after the company announced that it will build a 1GW capacity world-class AI data centre.
Siddharth Bhmare said, “Though it’s in a phased manner, it’s capital-intensive and ROE dilutive. This is unlike TCS.” As per available information and the management’s commentary, while speaking to analysts, indicates that “$6-7 billion is likely to be invested for the 1 GW of data centre capacity.” This will spread over 5-7 years.
TCS Q2 highlights
The company’s net profit rose slightly by 1.4% year-on-year to Rs 12,075 crore for the second quarter of the current financial year.
TCS’ revenue came in at Rs 65,799 crore, an increase of 3.7% QoQ and 0.8% in constant currency terms. The tech stock’s operating margin expanded by 70 basis points to 25.2%, while net margin improved to 19.6%.
Also, TCS declared a second interim dividend of Rs 11 per share, with October 15 as the record date and November 4 as the payment date.
“We lower our FY26 EPS by 2% to factor in restructuring costs in H2 FY26. We maintain a target price of Rs 3,300. Our FY26-28 EPS are 2-5% lower than the Bloomberg consensus,” said Nomura in a research note.
Foraying into AI ecosystem through data centres
The company announced its foray into the AI ecosystem. The company will be setting up a wholly owned subsidiary in India to establish multiple AI and Sovereign Data Centres. TCS intends to set up 1GW of capacity over the next 6 years with a potential capex of $6-6.5bn funded through both debt and equity, and also having external partners.
TCS deal wins increase in Q2
Total contract value of deal wins stood at $10 billion, up 16% YoY, with a book-to-bill ratio of 1.34x, with one mega deal. Based on the demand pipeline and normal furlough season in Q3, TCS believes revenue growth in FY26 will be better than FY25 for major markets.
TCS stock performance
The share price of TCS has risen by over 5% in the last five trading sessions. The stock has fallen 1.3% in the past one month and 5.3% in the last six months. The tech stock has corrected by almost 28% over the last one year.