- TCS warns AI-led revenue deflation risk if IT shifts from effort to outcome pricing models
- About 95% of enterprises are in early AI adoption stages in Indian IT services sector
- AI reduces headcount needed, putting pressure on current billing and revenue models
Coming on the back of a strong fourth quarter earnings, Tata Consultancy Services believes AI-led revenue deflation is a real risk in the IT services industry, if the sector fails to transition from effort-based to outcome-based pricing models. The admission was made by TCS CFO Samir Seksaria, in an interview with Kotak Securities.
Seksaria added that nearly 95% of enterprises are still in the initial phase of their AI journey, meaning we are still in the early stages of AI deployment in the Indian IT services sector. While this suggests the full disruption is still some distance away, it also means the revenue opportunity from AI-led transformation has yet to fully materialise for IT services companies.
This is combined with Seksaria's admission that the current billing model is under structural pressure as AI reduces the headcount required to deliver the same outcomes.
The CFO's comments come against the backdrop of various media reports that claims TCS has asked its managers to classify at least 5% of the workforce in 'Band D', the lowest performance category for the latest appraisal cycle. This has led to fears about a potential layoff cycle.
Meanwhile, Seksaria said vendor consolidation is working in favour of TCS, with the company as a net gainer as enterprises rationalise their IT service provider base.
Kotak Securities, which has maintained a 'buy' rating on TCS with a target price of Rs 3,100, cited Seksaria stating the company's strong Q4FY26 revenue exit provides them a solid buffer against unanticipated macro events in FY27.
On margins, however, multiple headwinds persist. Larger productivity commitments to clients, upcoming wage hikes and M&A drag are the three primary pressures, even as the company expressed confidence in its ability to defend margins through the year.
ALSO READ: TCS Asks Managers To Put 5% Staff In Band D, Stoking Fears Of Fresh Layoffs: Report
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