TCS Q3 Shock: Profit Plunges 14% on Labour Code Hit, But AI Revenue Soars to $1.8Bn

Tata Consultancy Services (TCS), India's largest IT services exporter, reported its Q3 FY26 results, revealing a 13.9% year-on-year drop in net profit to ₹10,657 crore, primarily due to ₹3,138 crore in charges related to new labour code implementation, one-time transition costs, and a ₹1,010 crore legal provision[1][2].

Despite the profit decline, revenue from operations rose 4.8% YoY to ₹67,087 crore, surpassing analyst estimates with 2% sequential growth (0.8% in constant currency terms)[1][2]. Operating margins held steady at 25.2%, showcasing resilience amid restructuring[1][3].

A bright spot was TCS's AI-led services, with annualized AI revenue surging 17.3% quarter-on-quarter to $1.8 billion, underscoring strong client demand and the company's five-pillar AI strategy from infrastructure to intelligence[1][3][5]. CEO K Krithivasan noted, “The growth momentum we witnessed in Q2FY26 continued in Q3FY26. We remain steadfast in our ambition to become the world’s largest AI-led technology services company”[3].

Order inflows moderated, with total contract value (TCV) at $9.3 billion, down from $10 billion in the prior quarter[1]. Sector-wise, BFSI grew modestly YoY but dipped 0.4% QoQ in constant currency, while consumer business declined annually; life sciences and healthcare showed steady growth[1][5].

TCS announced a bumper dividend of ₹57 per share, including a third interim dividend of ₹11 and a special ₹46 per share (record date January 17, 2026; payment February 3, 2026), signaling confidence in shareholder returns[2]. Headcount fell by 11,151 sequentially to 582,163 amid ongoing efficiency measures[1][7].

CFO Samir Seksaria highlighted, “Our sustained margin performance and strong cash conversion this quarter reflects our disciplined execution and financial resilience. Backed by a robust balance sheet, we continue to invest confidently in strategic growth areas”[3][5].

TCS shares ended 1.1% higher at ₹3,243 on NSE ahead of the results, reflecting cautious optimism despite a tough 2025 where the stock fell 21%—its worst annual performance since 2008[4][6]. The results emphasize TCS's pivot to AI amid global tech spending caution and domestic regulatory shifts.