TCS and HCLTech Exceed Q3 Revenue Expectations Amid Labour Cost Pressures
TCS and HCLTech exceeded Q3 revenue expectations with $7.51 billion and $3.79 billion respectively, surpassing Bloomberg analyst estimates. TCS saw European clients drive growth while HCLTech benefited from software product sales. However, new government labour codes requiring 50% basic pay ratios added $347 million in combined costs, pressuring margins. While TCS expressed cautious optimism about demand trends, HCLTech lowered full-year guidance amid global uncertainty, though both companies reported strong AI revenue contributions.
*this image is generated using AI for illustrative purposes only.
Tata Consultancy Services and HCL Technologies outperformed analyst revenue expectations in the third quarter, demonstrating resilience despite facing significant cost pressures from new labour regulations. Both IT giants navigated challenging market conditions while maintaining steady demand across key business segments.
Financial Performance Overview
The quarterly results showcased contrasting revenue trajectories for both companies:
| Company | Q3 Revenue | Analyst Estimate | YoY Growth | QoQ Growth |
|---|---|---|---|---|
| TCS | $7.51 billion | $7.43 billion | -0.40% | +0.60% |
| HCLTech | $3.79 billion | $3.70 billion | +7.40% | +4.10% |
TCS's revenue decline of 0.40% year-on-year reflected ongoing market challenges, while the 0.60% sequential growth indicated stabilizing trends. HCLTech demonstrated stronger momentum with 7.40% annual growth and 4.10% quarter-on-quarter expansion, significantly outpacing expectations.
Profitability Under Pressure
Net profit performance revealed mixed outcomes for both companies:
| Metric | TCS | HCLTech |
|---|---|---|
| Net Profit | $1.50 billion | $537.00 million |
| YoY Change | +3.10% | -1.30% |
| QoQ Change | +2.70% | +10.50% |
Despite healthy profit numbers, both companies encountered substantial margin pressure from government labour code changes. These regulations mandate basic pay constitute at least 50% of total compensation, thereby increasing statutory payouts including provident fund and gratuity contributions.
Labour Code Impact
The implementation of new labour codes created significant additional expenses:
| Company | Additional Q3 Costs | Impact |
|---|---|---|
| TCS | $238.00 million | Margin compression |
| HCLTech | $109.00 million | Operating pressure |
| Combined Total | $347.00 million | Sector-wide challenge |
These costs directly impacted operating margins, with TCS maintaining 25.20% margins unchanged from the previous quarter, while HCLTech reported 18.60% operating margins, up 110 basis points primarily due to software product sales.
Revenue Drivers and Market Segments
Both companies identified distinct growth catalysts during the quarter. More than half of TCS's incremental revenue originated from European clients, who represent nearly one-fifth of the company's total business. This geographic diversification provided stability amid varying regional demand patterns.
HCLTech's performance was notably driven by software products and licenses, with more than three-fifths of growth coming from this segment despite contributing only 11% of overall business. This high-margin segment helped offset some cost pressures from the labour code implementation.
Management Outlook and Guidance
Leadership commentary revealed divergent perspectives on market conditions. TCS Chief Executive K. Krithivasan noted continued demand environment improvement from the previous quarter, emphasizing focus on short-cycle projects with faster decision-making and clearer returns. He observed steady increases in such projects across all industry segments.
HCLTech adopted a more cautious stance, with Chief Executive C. Vijayakumar highlighting persistent global market uncertainty leading to slower spending growth. However, he emphasized that fundamental demand for technology-driven business transformation remains structurally intact. The company lowered its full-year guidance upper range to 4.00-4.50% from the previously outlined 3.00-5.00%.
Workforce and Operational Changes
Both companies implemented workforce adjustments during the quarter:
| Company | Headcount Change | Total Employees | Context |
|---|---|---|---|
| TCS | -11,151 | 582,163 | Fourth consecutive Q3 reduction |
| HCLTech | -261 | 226,379 | Modest adjustment |
TCS's significant headcount reduction reflected ongoing optimization efforts, including previously announced restructuring affecting 12,200 middle and senior-level employees who could not be reskilled.
Technology Investment Focus
Both companies reported substantial artificial intelligence revenue contributions. HCLTech generated $146.00 million in AI revenue during the quarter, bringing total AI revenue to $246.00 million. TCS reported $1.80 billion in annualized AI services revenue, representing 17.30% quarterly growth in constant currency terms.
Management indicated automation will take center stage in the current calendar year, though agentic AI implementation is proceeding cautiously with emphasis on validated solutions and regulatory alignment.
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