Ladies and gentlemen, good day and welcome to the TCS earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Nehal Shah from the Investor Relations team at TCS. Thank you. Over to you.
Thank you, Yashaswin. Good evening and welcome everyone. Thank you for joining us today to discuss TCS' financial results for the first quarter of FY 2027 that ended on June 30th, 2026. This call is being webcast through our website. An archive, including the transcript, will be available on the site for the duration of this quarter. The financial statements, quarterly fact sheet, and press releases are also available on our website. Our leadership team is present today on this call to discuss our results. We have with us today Mr. K. Krithivasan, Chief Executive Officer and Managing Director.
Hi. Good evening, everyone.
Ms. Aarthi Subramanian, Executive Director, President, and Chief Operating Officer.
Good evening, everyone.
Mr. Samir Seksaria, Chief Financial Officer.
Hello, everyone.
Mr. Sudeep Kunnumal, Chief HR Officer.
Hello, everyone.
Our management team will give a brief overview of the company's performance, followed by a Q&A session. As you are aware, we don't provide any specific revenue or earnings guidance, and anything said on this call which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. We have outlined this risk in the second slide of the quarterly fact sheet available on our website and emailed out to those who have subscribed to our mailing list. With that, I would like to turn the call over to Krithi.
Thank you, Nehal. Good day, everyone, and thank you for joining us. I would like to begin by calling out the key takeaways from our Q1 FY 2027 performance. First, Q1 FY 2027 reflects continued growth momentum and the strength of our strategic positioning despite the geopolitical and macroeconomic headwinds. Our Q1 revenue stood at INR 72,275 crore, growing 2.2% sequentially and 13.9% year-on-year. This is our consecutive quarter of growth. Growth was led by BFSI technology software and services regional market and products and platforms. Second, strong order book closure and large deal momentum continued. We delivered a TC of $9.5 billion, including net new AI-led business transformation deals, such as our $800 million megadeals with SKF. Sixth megadeals win in the last five quarters. Multi-million dollar strategic partnership agreement with ServiceNow. Multi-million dollar deal with Europe-based Fortune Global 500 firm.
The third key takeaway is our AI services revenue continues to accelerate. At the end of Q1 FY 2027 , it stands at $2.6 billion in annualized revenue, which is up 13.6%. Fourth, client priorities are increasingly aligned with our focus areas of AI-led transformation, modernization, cybersecurity, Sovereign Cloud, platform rationalization, and vendor consolidation. We maintain healthy client additions across $10 million, $5 million+ and $1 million+ revenue bands on a sequential basis. Fifth, our operating margin stood at 24%, down 130 basis points sequentially, primarily due to wage hikes. Finally, we continue to advance our infrastructure to intelligence strategy through unique partnerships with frontier AI companies and new launches. We announced a global premier partnership with Anthropic, which gives us early access to Claude family of models, 50,000 licenses, a joint GTM campaign, co-creation of industry solutions, and TCS iON as training and certification partner.
TCS also became the first GSI partner for Mistral AI. Together, we will build sovereign and custom AI models for enterprises and establish a dedicated COE for developing industry solutions across BFSI, healthcare, manufacturing, and public sector. We also launched TCS SovereignSecure Cloud for Europe, directly addressing rising demand from governments and regulated enterprises for compliant, sovereign, and AI-ready cloud infrastructure. This strengthens TCS leadership presence in Europe as clients' priorities data residency, operational control, and geopolitical risk mitigation. We launched a dedicated global value and innovation center business unit to help enterprises build, operate, transform, or diverse global capability centers. HyperVault is strengthening TCS market positioning and deepening 360-degree partnership with clients and ecosystem partners. In Q1 FY 2027, partnerships enabled two very large IT services deals, which were net new for us.
I will now invite Samir, Aarthi, and Sudeep to go over different aspects of our performance during the quarter. I'll step in later to provide more color on the demand trends that we are seeing. Over to you, sir.
Thank you. Good day, everyone. Our quarterly revenue was INR 72,275 crores, a growth of 2.2% from the Q and 13.9% in INR terms. In dollar terms, revenue was $7,624 million, which was flat growth sequentially and 2.7% Y-o-Y. That in constant currency terms was 40 basis points sequentially and 3.2% year-on-year. This quarter, we have undertaken a refinement of cost categories to address the previously elevated other expenses to provide a clearer view of the underlying cost drivers. This change has no impact on overall expenses or operating margins, and prior periods have been aligned for comparability. Prior four quarter comparative details are available in our quarterly fact sheet. Operating margins for the quarter was 24%, declining 130 basis points sequentially. In Q1, we rolled out annual increments for our global workforce, which impacted margins by 170 basis points.
We strengthened our partnership ecosystem and made targeted investments, which we were able to partly offset with 40 basis points of currency benefit and operational efficiencies. Our strong profitability allows us the ability to make significant investments which are aligned with our aspirations. We are investing in AI capabilities, talent transformation, partner ecosystems, platforms, domain solutions, and go-to-market capacity. These investments are necessary as client demand increasingly requires integrated offerings across the infrastructure to intelligence AI stack. At the same time, we continue to drive operational rigor through pyramid optimization, productivity improvement, better resource fulfillment, automation, and disciplined cost management. As we have demonstrated in the past, our approach is to not optimize margins in isolation, but to invest in capabilities that strengthen our long-term competitiveness while continuing to deliver industry-leading profitability and return ratios. Net margin for the quarter was 19.2%.
DSO stood at 74 days in dollar terms and constant sequentially. Our cash conversion remains strong at 93% of net income. Invested funds at the end of the period stood at $5.3 billion. Our capital allocation policy remains unchanged. We remain committed to returning substantial free cash flows to our shareholders while judiciously investing to support our long-term growth aspirations. I will now invite Aarthi.
Thank you, Samir. Good evening. Q1 saw strong growth momentum across our services portfolio with multiple AI transformation wins. AI demand continues across IT operations, software engineering, modernization, business process transformation, and enterprise platform implementation. The nature of engagements ranges from AI-led optimization to large-scale AI native transformation programs. Let me share a few of our key deal wins this quarter. We signed a megadeals with SKF to enable transformation across infrastructure, applications, enterprise systems, and business processes. The program will help SKF build an AI-native enterprise through global process standardization on S/4HANA, AI-led IT ops, and business transformation to drive revenue growth, working capital improvement, and predictable IT costs. For a large North American utility major, we are transforming a decade-long collaboration into a future-ready operating model.
The engagement will modernize operations across grid management, customer experience, asset management, workflow enablement, while building a scalable foundation with strong AI governance and lifecycle management. TCS won this renewal with an AI-first proposition for existing services and was also chosen as a partner for transformation of the utility major into an AI company. This quarter, we also had multiple deal wins in Autonomous GBS across HR, finance, and customer experience. Agentic operating model is at the core of our customer value commitment in BPS. Agentic AI has rapidly dominated customer conversations this year and is increasingly shaping how we design and deliver solutions. With growing adoption, AI governance is becoming a top priority for enterprises. TCS is investing in enabling customers deploy and manage AI securely through our agentic control plane, providing governance, observability, lifecycle management, and cost control.
Let me take you through how agentic AI is being deployed across enterprises for IT and business transformation. AI agents in software engineering, IT operations, and technology modernization are becoming mainstream. Enterprises are combining agentic capabilities from their existing tool investments with contextual agents for improving productivity and resilience While accelerating time to market as less. For a large retailer, 70 agents are orchestrating IT Ops across more than 60 infrastructure and application workflows, integrating with the customer's ITSM tools. Continuous 24/7 monitoring and 24/7 operations has shifted from largely human monitoring to AI-led monitoring. The transformation has resulted in 30% faster remediation and 80% fewer incidents. Business process transformation with agentic AI will be a significant opportunity across industries. Enterprises are looking at both redesigning workflows with AI, as well as driving process optimization with AI.
TCS is building domain-specific workflow blueprints and agentic vertical platforms with pre-built agents across industry domains to accelerate business transformation. Let me share an example of how AI agents are working alongside humans to transform worker compensation workflow for a global specialist insurer. TCS has deployed seven AI agents, including specialized medical and fraud review agents, who are operating alongside human examiners. This human plus AI operating model has cut claims settlement by 40%, replacing a legacy process that relied on several sequential human handoffs. The result is faster and more consistent claim operations with meaningful impact on cycle time and customer experience. We will continue to drive focused execution on our infrastructure to intelligence strategy that we announced last year. As all of us know, AI is evolving at unprecedented speed with model capabilities emerging rapidly.
We continue to integrate the latest advances into our services, platforms, and solutions in collaboration with our partners. Thank you. I'll now hand it over to Sudeep.
Thank you, Aarthi, hello, everyone. Our workforce at the end of quarter stood at 593,798. This quarter we completed the annual salary increments for all associates globally and also aligned salary structures of our India associates with the new India Labour Code requirements. We continue to build a workforce equipped for evolving client needs through balanced talent strategy that combines fresh hiring, experienced professionals, and sustained talent development. Our campus hiring continues to focus on digital and AI-native talent, supported by reimagined initial learning program and stronger AI-centric curriculum. We are investing in the trainee pipeline and deployment readiness through experiential project-based learning while gradually moving towards a more skill-centric employee pyramid. We're also investing in large-scale upskilling and reskilling of our existing workforce. TCS continues to operate one of the industry's largest enterprise learning engines.
In Q1 FY 2027, associates logged 14.6 million learning hours and gained over 1.3 million competencies. Our lateral hiring is focused on domain-specific and AI-native talent. Over 50% of the lateral hires already possess next-generation skills. We expect this share to increase as we continue to build talent depth. Looking ahead, we remain focused on enabling our people to be future ready through investments in AI infrastructure and next-generation skill development programs. We are committed to fostering a workplace environment where every associate feels safe, valued, trusted, and empowered to grow. Thank you, I'll now hand it over back to Krithi.
Thank you, Sudeep. Let me now share details of our key industry performance this quarter. BFSI delivered good growth across geographies. Tech software and services continued its growth momentum. We successfully won several large and mid-sized deals in this segment, including a multimillion-dollar deal with ServiceNow. The Consumer Business Group, the quarter was driven by a combination of inflationary pressures and the ongoing geopolitical uncertainties impacting discretionary spend. In this environment, client priorities are around managing their increasing costs. Growth initiatives remain selective, centered on targeted areas that could deliver scalable impact without increasing risk exposure. Life Sciences and Healthcare saw a decline this quarter. However, with core demand for AI transformation, automation, and compliance initiatives intact, recovery is expected soon. Manufacturing continued to show softness in certain segments like auto, while decision making was influenced by tariff pressure, macro uncertainty, EV recalibration, supply chain resilience, and cost discipline.
Our outlook remains positive for Manufacturing based on multiple net new deal wins signed this quarter. For instance, we announced a landmark $800 million global AI-led business transformation deal with SKF for redesigning their enterprise operations around an intelligent digital core.
Significant amount of pent-up technology backlog to be completed. I expect the demand to improve sometime in Q2. We are generally optimistic on Q2, going in at this time.
Thanks a lot for that. My second question was around the SG&A investments, and you have called out earlier as well that you are making investments, especially around AI, and that line item is up by about 16% in dollar terms year-over-year. If you could give us some more granular color, what investments we are making over there. Is it sales hiring? If so, in which geography, which areas we are focusing or anything else which we can have a better sense of what areas we are incrementally investing in?
The overall SG&A, one, Kumar, as we talked about, the reclassification, we have done away with the split up of foreign SG&A. As you rightly said, from the IFRS, the SG&A investments have been increasing and, like we have been previously reporting, it is mainly on the employee side of it and also in terms of the partnerships and targeted investments. This also includes the charge-off on the M&A side.
Got it. Thanks a lot for that. I'll fall back in the queue.
Thank you. Next question is from the line of Yogesh Aggarwal from HSBC Securities. Please go ahead.
Yeah. Hi, guys. Couple of questions. Firstly, thanks for sharing the AI revenues and the details around the AI deals, I think the picture will be a lot more complete if you can also discuss the impact percentage of revenues or the business or the clients has already gone through the productivity pass through and how much is left. Is it significant or is it not a large share?
Yogesh, your line was not very clear, I'm assuming your question is around any overall revenue deflation because of the productivity gains coming out of AI. Is this right?
Yes. What part of the business has already gone through it?
It's difficult to quantify on what. What we can see is as and when the projects come up for renewal
We find opportunities along with our clients to unearth productivity benefits and pass them on to our customers. Also, there are some situations where our associates proactively look at opportunities and go to our customers and say where we can reduce the overall spend. We also have seen in many places, whenever we go to our customers with such opportunities, customers give us additional work so that the top line is not significantly impacted. This is an ongoing process, Yogesh. It'll be very difficult to say whether we are done with all productivity gains are being passed on. One quantification I can give you is in most places, the productivity gain passed on center hour is around 10%-15% range.
Right. Thank you. Just a clarification, Europe and U.S. in particular were weak in this quarter, which is usually a strong. You are saying that the
Yogesh, I'm sorry, you're sounding muffled.
Okay, I'll come back in the queue [inaudible]
Yeah. Thank you.
Thank you. Next question is from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.
Yeah. Hi, Krithi. Thanks for the opportunity. Firstly, on the incremental AI revenue added. We added $75 million of incremental AI revenue this quarter, versus $125 million of incremental revenue added in the March quarter. Is there any peculiar seasonality here or was this quarter impacted by West Asian conflict or any other matters? The reason I'm asking is, we don't have the full time series pattern to sort of understand the trend.
Sudheer, we have yet to understand this AI revenue. It is not like a traditional ADM revenue where there is a lot of annuity revenue involved. This is something that many of these projects tend to be a one quarter, two quarter projects. Where we complete and we have to win again, new projects and accrue the revenue. Deliver and accrue the revenue. There would be some quarters where we would be able to. This will tend to be a little lumpy in terms of the size of the work, overall revenue that we get. What we look for is it continuously increasing and the conversations with our clients, are they yielding more opportunities? We are quite happy with the kind of growth we have been seeing on a quarter-on-quarter basis because of the non-recurring nature of this work.
Got you. The second question is the latest buzz term in the industry is the forward deployed engineers. If we were to loosely equate this, would the role of a product manager in the digital era be a comparable benchmark for the role of an FDE? A connected question is, if you were to assess your overall workforce, how many FDEs would you count upon in the overall global workforce that you have right now?
Sudheer, this is Aarthi here. Firstly, the definition of FDE is evolving as we speak. Within TCS, we have come up with a definition and along with the definition, the building of competencies and deployment of those engineers. As you know, the FDEs work in pods, also called squads. The entire operating model around FDE is something we are defining. If you look back in the last year, since we started delivering in the new operating model with AI, we call it Innovate with AI, Build with AI, Scale with AI, which is our AI Acceleration Playbook that we came up with last year. We had this concept of rapid build engineers, which is very similar to a forward deployment engineer. The difference being that a forward deployment engineer would have multiple skills, but would be very deep [inaudible]
Most of these FDE deployments are a different kind of project where you start with a problem that you solve for and then you deploy the squad and the engineers. I would not equate this to the role of a product manager. Right. These are specialist engineers who are multi-skilled, but deep on one particular skill. Right. In TCS, we coined a term many years ago as a [inaudible]
Last question. To your earlier response on the West Asian conflict impact, you said the uncertainty which started in March continued through April, May and June. If you were to quantify the rate of change, given that you are expecting improvement sometime in the second quarter- are you seeing that it would have already peaked and it is sort of improving the situation on a month-on-month, week-on-week basis? How would you essentially quantify the rate of change of this dynamic?
Sudheer, I won't say quantify the rate of change. I can only talk based on the conversations we are having with our customers. For instance, we did talk about, in this quarter, that we expect the Life Sciences to do better. Some verticals we see there is a stronger uptick visible. That gives us the confidence, and overall conversations that we are having with our customers in different verticals is giving us the confidence Sudheer. I don't know whether I can put a rate of change or quantify that at this time.
Very nice, sir. Thanks, and all the best.
Thank you. Next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi. Good evening. Thank you for the opportunity. Couple of quick ones. One is, I feel last year we had very solid deal win growth in retail and consumer. While consumer seems to be soft, is it that those deals aren't converting to revenue, or you think that pipeline should start converting to revenue and should lead to some growth as we move forward? That's the first one.
Nitin, there are multiple factors playing out here. While we did sign large deals, we did have few large projects ending also. Because of the large projects closing, the net addition was what the new projects net addition was ramping up, and we are still not there to completely recover from those large projects. I think as the quarters move along, as the large projects that we signed up, as they start yielding revenue, we'll start seeing growth.
Sure. Just two questions from a demand perspective. One is that in the U.S., corporate revenue growth seems to be quite decent, I think consensus expectations on growth for this year, on growth overall is pretty broad-based across industries and seems pretty strong. Historically, we have seen a very high correlation, but this time around, it looks like it's not really coming through. Why do you think we are seeing this dynamic? Is it more being attuned to the demand that is not happening? Or is it there is a real caution on spend? If there is velocity of growth, then why should spend be so curtailed? Is the first question. The second question is, are you cautious on BFSI, if I understood your commentary, or you think that BFSI continues to do well?
Nitin, in fact, my answer to both the questions is probably similar. The growth or lack of, if you see the banks are doing very well in U.S., and we also are quite optimistic on the sustained growth in BFSI segment. I did call out retail is one segment where because of the geopolitics, When I say retail or consumer business with the airlines and non-essential retail, all of them are having a greater impact because of the global geopolitics. Similarly, you have manufacturing. Our manufacturing has a significant auto component, and auto is also having a impact because of multiple reasons. We need to look at it from a sector perspective. Going forward, actually, as I said, BFSI, we are looking good. Manufacturing, we believe will turn around in Q2. Life Sciences could turn around in Q2.
Tech Services will continue to grow. We are quite optimistic on these.
Sure.
Consumer business will turn around once we have a better market sentiment on geopolitics.
Sure. Got it. That's helpful. Thank you so much, and all the best.
Thank you. Next question is from the line of Ravi Menon from Axis Capital. Please go ahead.
Hi. Thank you for the opportunity. In this environment where the narrative is that white-collar employment will decline due to AI, the first casualty likely be software development. During your wage hikes and hiring seem to be sending a signal that you see things differently. Can you talk a bit about why you've given this wage hike and why such strong hiring in an environment where at least the narrative seems to be that we will need net fewer people to do this sort of work?
Ravi, I think our Chairman also spoke during the last AGM. We first of all do not believe that there would be a drastic reduction in employment. There will be people would be doing different things. Like currently, if they are doing software engineering and coding, there could be more skill sets required in terms of prompt engineering. People will be training models, testing models, and lifecycle management. Many other new opportunities would come up. We don't agree with the view that overall white-collar employment will go down. Second, our hiring is based on. We do proactively, we want to have more top talent available in the organization. Whenever we see opportunity and also whenever there is a demand that could immediately, where we could deploy the people in the client engagements.
These are a couple of factors that help us or direct us into more hiring. Again, as I said, we don't fully agree that AI is going to reduce the overall white-collar jobs.
Thanks, Krithi. Consumer, you spoke quite a bit about it, but any specific sub-segments within this that you'd like to call out? For example, airlines, where we're seeing?
See, airlines definitely is staying stressed. Airline North America is definitely one of the areas. By and large, the non-essential retail also comes under stress.
All right. Thanks. From the sounds of it looks like except for the Consumer segment, you are optimistic that most others seem to be picking up and will continue.
As we speak, we see a good turnaround in almost every other.
All right. Thanks so much, and best of luck.
Thank you. Next question is from Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks for the opportunity. It is good to see that under AI-led transformation bucket, we have disclosed a megadeals win of $ 800 million from SKF and that too net new, versus the market perception that the role of the system integrator in terms of AI-led transformation would be much lower. What has led for a client to award such deals to a system integrator? Do you believe it can spread to other verticals, other large clients, and this could be a start of some modernization brownfield kind of a demand? Second, with AI-led transformation, I think the tenure of execution could be lower. In this kind of a scenario, though it's a megadeals, the ACV could be much bigger versus what it used to be in the earlier avatar.
Sandeep, Aarthi here. Let me talk about the megadeals that you called out, SKF. Just wanted to highlight that it's a net new deal. It is over $ 800 million in revenues. I think what is the driver? I think it is TCS ability to partner with the customer to really transform their business and technology landscape and help them in their ambition to wanting to be an AI first company. I think that is what is the underlying partnership intent, if I may call it that. When you look at this deal, it's a very holistic deal cutting across multiple aspects, right? TCS is going to help SKF completely optimize their run across infrastructure, applications with AI, right? AI-led efficiencies. The second thing is, many enterprises have legacy tech stack that they need to modernize.
Here, S/4HANA transformation is big part of this deal commitment. What is interesting is S/4HANA is not an upgrade. We are going to completely do a process mining of their existing processes, use AI to redesign the new process, and then execute the implementation with AI. It's a very nuanced AI implementation of S/4HANA, which is now the latest trend. In addition, we are also partnering with the customer on industry value chain transformation. Net- net across IT business transformation with AI, is what we have partnered with the customer for.
Yeah.
Additionally, it's global. All the work that we do will span across SKF operations globally. We're very excited about this very unique opportunity.
My question is, such kind of prospects are coming into pipeline across many sectors or these kind of things are sporadic? Second, with AI-led transformation, is it fair to assume the conversion of such kind of a megadeals to revenue could be faster because the tenure of the deal could be lower and ACV could be higher?
Sandeep, if you look at it over the last quarter, we announced three megadeals. This quarter, we have one megadeals. I think in the last three quarters or a year, we have announced five megadeals, right? Six megadeals. Sorry. Five quarters, six megadeals. These megadeals cut across industries, right? But in terms of the scope, I think they all have something in common. It has a component of optimizing the run with AI and then partnering with the customer on the business transformation. It cuts across, and I think where the acceleration comes is in the transformation, the discretionary projects that are part of the bundle. That's where the AI acceleration comes in execution.
One thing we are seeing is that compared to earlier, how we would do such deals, how we bring AI much earlier into the execution, whether it's in ops or in transformation. AI is part of the day one proposition and execution. That brings a certain acceleration to the transformation and also to the execution duration.
Okay. Just a last question. With many clients are spending higher than what they budgeted on AI tokens, is there a discussions happening where clients will have hybrid model of LLMs, where are they open to even use open source model from a pioneer like DeepSeek based out of China? If that happens, do you believe the system integrators role will further increase because of the complex architecture of the same?
This we've been saying for quite some time, Sandeep. We believe like most enterprises will have multiple stacks. One LLM plus many SLMs or multiple LLMs, all within the same family. They probably will use a older model for certain queries and a newer model for certain workloads. Because the model synapse will become an important topic for what they would use on-prem model, for what they would use a cloud token-based model will also change. This is an area where system integrators have a greater role to play and ensure that the client's money is well spent and the value is delivered to them. We see this increasing as we go along.
Yeah. Sandeep, if I may just add, I think in the AI world today, I think making technology decisions across the infrastructure to intelligence stack is becoming much more challenging because the technology is changing so fast, and also there are decisions to be made across the stack on top of an existing technology investment that the company already has. I think what the big role that we are playing is helping customers make these technology choices. Secondly, how do you integrate these technologies into an existing diverse, complex landscape? I think that is where we are playing a very big role and our being in the client environment for decades, for years, knowing the context and then making investment in these partnerships to know these products and technologies. The role we play is taking the product capability and creating enterprise value out of it.
The need for this is bigger now than ever before.
Okay. Thank you and all the best.
Thank you. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. I have a couple of questions. My first is, given the comment that you made around net new AI deals, significant ones in the current quarter, has there been a change of mix in your current order book between renewals and the net new deals?
No, it's a very marginal shift towards the more AI transformative deals, but I won't say it's a significant shift.
Got it. My second question is around your AI revenues given.
Sure. Aarthi here. See, I think, the client engagement models are across multiple archetypes. We are seeing, I would say, output commitment-based models, outcome-based models, where we are committing to the AI program to deliver a business outcome, right, in a fixed duration. That's starting to happen. Second one, I would say is definitely fixed price, fixed capacity, where you start with a program, then once the customer sees value, then we actually set up multiple pods like I spoke earlier. We call it our AI lab offering, where that is part of the build and scale. You build once, then create capacity in a fixed price model, and then in some cases you do continue to see T&M requirements coming in. T&M still means that you take accountability for delivering the outcomes.
All three models we are seeing, and especially in agentic GBS, we are seeing a lot more shift, especially this quarter, to more outcome-based commitments. It has always been transaction-based, right, and very less T&M. Transaction and outcome-based commitments are increasing in our autonomous GBS deals, and we saw quite a few of them this quarter in F&A, HR and Customer Experience.
All right. This is so useful. Thank you. Last question is for Samir. I know that you categorically talked about prioritizing investments in the current context of how technology is shifting. You also did mention about maintaining our aspirational band on margins on a medium term. How medium is the medium term from your perspective, given where we are in the life cycle of the technology change right now? Thank you.
Overall, Gaurav, our approach has been to balance growth investments with operating discipline.
That's what we have been doing it consistently. We talked about it in our Analyst Day also. We have been reinvesting some part of the gains into things which will achieve our aspirations or long-term commitments. See, we have a lot of question, given our industry-leading profitability. Our aspiration would be to achieve or make the right investments, but not inch- up closer, at least to the FY 2025 levels.
Thank you so much. All the best.
Thank you. We will take our next question from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Hi, thanks for the opportunity. The first question is in terms of segmental margins. Just want to get a sense in terms of why there has been closer to 250 basis points-300 basis points declines in margins across manufacturing, communications, life sciences, and even in other.
Okay, Ashwin. Overall, see, 170 basis points is the impact due to salary increments, right? Incrementally, there would be some impact coming in, at a segment level on specific verticals, basis investments they might be prioritizing. The key impact is the 170 basis points, which reflects across most of the segments which you mentioned.
Just a clarification to your answer, last question. We see the trajectory of margins to go back to our FY 2026 margins over the next few quarters, or from a full-year perspective, we see it to be very close to the previous year margins?
Ashwin, usually what happens is we take the big headwind upfront in Q1, and we inch up through the quarter. We'd want to exit at 25%+, and achieve it sooner rather than later.
Sure. The last question is in terms of fresher addition. How many freshers would we have added, and what is the plan for the year?
Ashwin, last quarter, we hired, onboarded 14,000 campus grads across. As we speak, we are in universities, the top universities across the country, and hiring for top talent, specifically looking for AI-native skills.
Sure. Thanks, and all the best.
Thank you. Next question is from the line of Abhishek Shindadkar from InCred Capital. Please go ahead.
Hi. Thank you for the opportunity. At the start of the call, there was a mention about productivity, which is 10%-15%. Can you just help us understand, is this on an ACV basis or a TCV basis? How should we reconcile this with some of the data points that have been talked, in other forums, that the total $1 trillion spend is going to compress by almost $300 billion over the next few years. Can you just reconcile that? Thank you for taking my question.
Abhishek, what I said is, there is an overall productivity we are able to achieve. It's about 10%-15%. That productivity we are able to achieve from day one when we leverage AI for these engagements. You should look at that productivity gain coming out of any period you have, whether it's ACV or even on an annual basis, that productivity gain and benefit reduction in effort or the deflation in revenue would happen because of productivity. We also mentioned that this usually is compensated by additional opportunities that we generate from the customer. The other question on overall contraction, it'll be too difficult for me to answer in terms of $1 trillion going in there. At this time, we don't see such a massive contraction or deflation happening. In the world, in fact, you did see that our overall headcount has actually increased this quarter.
We are not seeing that kind of contraction happening in our book of work with us.
Thank you. Just to follow up, Krithi wanted to understand that typically the understanding was the productivity could be 3%-5% annually. If it's a five-year deal, is it fair to assume that this number is spread over a five-year period every year? How does that play out?
It all depends on the kind of project and how you object. Because in every project, there are some phases in the life cycle that the productivity gain will be better, where it will be not very easy to achieve. That depends on the type of project. For instance, a new software development, application development would behave in one particular way. Monitoring would behave in different way. Production support will behave in different way. It will be difficult to say that whether it's what happens in the first year or second year. By and large, as I said, it's a rule of thumb saying that we can expect a 10%-15%.
We are seeing that we are able to offer a front-loaded commitment to our customers so that we are able to balance it out, to smoothen it out over the term of our project.
This is super helpful, sir. Thank you for taking my question.
Thank you. Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to management for closing comments. Over to you.
Thank you, operators. In Q1, our revenue grew by 0.4% Q-o-Q in constant currency with an operating margin of 24% and a net margin of 19.2%. Annualized AI services revenue crossed $2.6 billion. We had a very strong TCV of $9.5 billion in Q1. We remain confident that TCS is well-positioned to convert demand into stronger growth as client spending normalizes and AI adoption scales across the enterprise. This concludes 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.
Thank you, Nehal.
Thank you.