TCS Q2 profit rises 15% to Rs 13,884 crore as AI revenue doubles; growth remains subdued

Bengaluru: Tata Consultancy Services (TCS), India's largest software services firm, posted a 15% rise in net profit to ₹13,884 crore in the September quarter from a year ago while revenue rose 11.2% to ₹73,188 crore, largely in line with analyst estimates. The numbers were buoyed by growth returning in a small way, especially in the largest segment of banking and financial services along with AI services, which crossed $3.1 billion on an annualised basis, accounting for about 10% of total revenue.

On a sequential basis, profit was up 4% while revenue gained a modest 1.26%. On a constant currency basis, growth was largely flat at 0.5%. This was the slowest growth in three years in the second quarter, which is a seasonally strong one.

Operating margin narrowed 120 basis points to 24% due to the impact of higher operating expenses as hiring rebounded slightly with TCS onboarding 4,258 people.


Chief executive K Krithivasan said he was "positive" medium-term growth should recover going by the total contract value and the conversations that the company is having with the clients. "We are pleased with broad-based growth in all our international markets and most industry segments," he said on an analyst call.

The $300-billion Indian IT industry has been reeling under the impact of weak spending on technology due to global uncertainty and disruptions, along with the impact of AI-led automation eating into the earnings of companies.

"This quarter we announced two unique deals with Porsche and Best Buy which represent a new category of transformation partnerships," said Krithivasan. During the quarter, TCS announced the acquisition of Porsche's IT arm for $1.46 billion and US retailer Best Buy's GCC for an undisclosed sum. Revenue from these acquisitions will start flowing later this year.

Overall numbers were largely in line with analyst expectations, despite several quarters of muted growth driven by margin pressures and a slowdown in large deal wins.

An ET poll of analysts had pegged net profit growth at 9% from a year ago, while revenue was expected to gain about 13%. Sequentially, analysts had estimated a modest constant-currency revenue growth of 0.5-0.6%.

The September quarter also came with faster growth in AI revenue at $3.1 billion, which doubled from $1.5 billion in the second quarter last year, when the company first reported the category separately.

"We did quite well on AI revenues," said chief operating officer Aarthi Subramanian. "But if you look at traditional services, they did well too. Vendor consolidation and AI-powered software engineering, IT ops--how we innovate in execution is helping us differentiate and grow market share in traditional services as well."

For the September quarter, total contract value (TCV) was at $9.6 billion, marginally up from the preceding quarter's $9.5 billion. The growth came after its TCV saw a decline in the last three-month period.

Growth was led by the energy, resources and utilities sectors, which gained 5.7% YoY, followed by technology and services and the manufacturing sector, both of which grew over 4%. Banking, financial services and insurance (BFSI), its largest client segment accounting for 32.8% of revenue, gained 3.9%.

However, TCS' consumer segment continued its decline, falling 1%, as the sector remained sensitive to inflation and higher energy costs.

Among core markets, North America remained the leader with 48.3% revenue share, growing 1.5% on a yearly basis. The UK region accounted for 17.8% of revenue and recorded sharper 4.5% expansion, with the rest of Europe gaining 3.3%.

While the India market posted the steepest year-on-year growth at 6%, it was the only geography to record a fall on a sequential basis, down 10.3%. To be sure, the region accounts for just 5.5% of revenue.

"In India, we had a project deferral, which caused this revenue decrease. Otherwise, there is no structural issue. We are hoping to deliver these projects in subsequent quarters," Krithivasan said.

In FY26, TCS had posted its first annual revenue decline since listing-a 2.4% drop-showing the first signs of deflation in the IT sector.