TCS Reports Muted December Quarter Performance
TCS delivered a subdued performance during the seasonally weak December quarter. The company faced significant challenges from furloughs that impacted operations. In contrast, HCLTech emerged as a stronger performer, with management highlighting resilience in client demand despite broader economic uncertainties.
Financial Performance Under Pressure
Both companies saw their net profits decline substantially. TCS reported a 14% year-on-year drop in net profit to Rs 10,657 crore. HCLTech posted an 11% decrease to Rs 4,076 crore. These declines resulted from exceptional charges and restructuring costs that weighed on bottom lines.
TCS recorded an incremental exceptional charge of Rs 2,128 crore. This charge primarily stemmed from changes in wage definitions under new labour codes. The amount included Rs 1,816 crore for gratuity and Rs 312 crore for leave liability provisions. HCLTech absorbed a one-time cost impact of $109 million during the quarter.
Revenue Trends Show Mixed Picture
TCS's revenue increased by just 0.8% sequentially in constant currency terms. The company actually experienced a 2.6% decline compared to the same period last year. In dollar terms, revenue reached $7.5 billion, representing a modest 0.6% quarter-on-quarter growth. Operating margin remained flat at 25.2%.
HCLTech demonstrated stronger revenue performance. The company's constant currency revenue grew 4.2% quarter-on-quarter and 4.8% year-on-year. In dollar terms, revenue stood at $7.4 billion, showing 4.1% sequential growth and 7.4% annual increase.
Demand Environment and Market Conditions
Global uncertainty continues to weigh on technology spending patterns. However, demand for technology-led transformation remains robust. Discretionary spending is emerging selectively across client portfolios, though cost-takeout deals dominate current priorities.
TCS CEO Krithivasan noted that Europe continued to perform well among major markets. North America remained sluggish during the quarter. All next-generation service lines grew sequentially, and most client segments showed improvement on a last-twelve-month basis.
Growth Drivers and Sector Performance
Growth at TCS came from multiple sectors. Consumer, energy, resources and utilities, life sciences and healthcare, communications, BFSI, and technology, software, and services all contributed positively. The company's annualised AI services revenue reached $1.8 billion, representing strong 17.3% quarter-on-quarter growth in constant currency terms.
Krithivasan highlighted that TCS won several large deals across markets and industries during Q3. This included one mega deal in North America. The company achieved a total contract value of $9.3 billion. BFSI continued to show good growth momentum despite seasonality and furlough impacts.
Industry Challenges and Workforce Trends
The broader technology industry faces multiple headwinds. While big tech firms invest heavily in AI infrastructure and frontier capabilities, geopolitical uncertainty affects planning. Trade restrictions and evolving data regulations create additional complexity for global operations.
Workforce restructuring continued across the sector, with major layoffs occurring among top clients. TCS's headcount declined by 11,151 employees sequentially to 5.8 lakh. The company also reduced headcount by 25,191 compared to the previous year. HCLTech added 2,852 freshers but still saw total headcount decline by 261 employees to 2.2 lakh.
The technology sector navigates a complex environment where demand for transformation coexists with cost optimization pressures. Companies must balance investment in emerging technologies like AI with careful management of operational expenses and workforce dynamics.
