Even as revenue growth showed a gradual recovery for two of the country’s large information technology companies in the October-December quarter, one-off provisions linked to the new labour code weighed on profitability, pulling down sequential earnings for both Tata Consultancy Services and HCL Technologies and resulting in misses against street estimates.
Comparison of Net Profit and Market Estimates
For TCS, net profit fell 11.74% quarter on quarter to Rs 10,657 crore, reflecting the sharper impact of exceptional costs. HCLTech reported a 3.75% sequential decline in profit to Rs 4,076 crore. Both companies fell short of Bloomberg estimates, which had pegged net profit at Rs 13,001 crore for TCS and Rs 4,704 crore for HCLTech.
In their quarterly disclosures, the companies said provisions required to comply with the new labour code rules were recognised as exceptional items during the quarter. TCS said the impact translated into an additional cost of Rs 2,128 crore in the December quarter. At HCLTech, the labour code provision amounted to Rs 956 crore at the Ebit level and Rs 719 crore at the net income level.
Excluding the exceptional item, TCS reported net income of Rs 13,438 crore, ahead of Bloomberg estimates of Rs 13,001 crore. The adjusted net margin stood at 20%, an expansion of 40 basis points on a quarter-on-quarter basis. HCLTech’s adjusted net income, excluding the labour code impact, came in at Rs 4,795 crore, up 13.2% sequentially.
Revenue Growth and Market Beats
HCLTech led the sector in revenue growth during the quarter. On a constant currency basis, the Noida-headquartered firm posted sequential revenue growth of 4.2%, compared with TCS’s 0.8% quarter-on-quarter growth. In rupee terms, TCS reported revenue of Rs 67,087 crore, up 1.96% sequentially and above Bloomberg estimates of Rs 66,857 crore. HCLTech recorded revenue growth of 6% to Rs 33,872 crore, also exceeding Bloomberg estimates of Rs 33,262 crore.
Both companies highlighted rising traction in artificial intelligence-led business. HCLTech said its advanced AI revenue stood at $146 million, a 19.9% increase over the previous quarter’s $100 million. TCS said its annualised AI revenue grew 17.3% sequentially to $1.8 billion.
CEO Insights on TCS Growth
K Krithivasan, chief executive officer and managing director of TCS, said the growth momentum seen in the September quarter was sustained in the December period. “Our AI services now generate $1.8 billion in annualised revenue, reflecting the significant value we provide to clients through targeted investments across the entire AI stack, from infrastructure to intelligence,” he said.
C Vijayakumar, chief executive officer and managing director of HCLTech, said the company continued to see momentum in AI-powered offerings. “We see continued momentum in AI-powered solutions like physical AI, robotics and our AI factory programs,” he said, adding that despite global macroeconomic uncertainty, there was a strong uptick in new deals. The company said new deal wins grew 43.5% year on year to $3 million.
HCLTech raised its revenue growth guidance for fiscal 2026 to a range of 4% to 4.5%, compared with its earlier guidance of 3% to 5%. Services revenue growth is expected to be between 4.75% and 5.25% year on year.
At TCS, North America posted a sequential growth of 0.1%, slowing from 0.8% in the September quarter, while the banking, financial services and insurance vertical declined 0.4% sequentially. Krithivasan said the decline was seasonal in nature and that the company did not see any structural headwinds in the BFSI segment at this stage. HCLTech reported BFSI Growth of 8.1% year on year, while revenue from North America rose 1.5% annually.
(With inputs from Ojasvi Gupta)