Tata Consultancy Services demonstrated operational resilience by maintaining its EBIT margin at 25.2% during the December quarter, despite absorbing substantial exceptional costs that impacted reported profitability. The IT services major navigated through multiple headwinds while continuing strategic investments in growth areas, particularly artificial intelligence and future-ready capabilities.

Exceptional Costs Impact Financial Performance

The company faced three significant exceptional items that collectively impacted EBIT by ₹3,300 crore during the quarter. CFO Samir Seksaria provided a detailed breakdown of these costs, emphasising that underlying operational performance remained strong despite these one-time charges.

Seksaria explained that excluding these exceptional items, EBIT margins remained stable at 25.2% despite typical third-quarter seasonality pressures. The labour code provision was implemented based on current draft rules and expert consultation, with the company prepared to adjust once the government finalises the guidelines.

Margin Drivers and Operational Efficiency

TCS achieved margin stability through a combination of productivity improvements and strategic cost management. The company benefited from operational efficiencies while managing investment costs and wage impact from September salary revisions.

The productivity gains came from pyramid optimisation and workforce efficiency measures, demonstrating the company's ability to extract value from operational improvements even during challenging periods.

Strategic Workforce Management and Talent Development

Despite workforce rationalisation efforts affecting approximately 800 to 1,000 employees during the quarter, TCS continued aggressive hiring and capability building initiatives. Chief Human Resources Officer Sudeep Kunnumal highlighted the company's commitment to future-ready skills development.

Key workforce developments included:

• Hired close to 16,000 people during the quarter
• Ranked industry leader by Everest Matrix in future-generation skills
• Achieved number one position in AI, data services, and machine learning capabilities
• Grew AI-skilled workforce three times compared to the previous quarter

The company emphasised that workforce rationalisation operates without fixed targets, with case-by-case evaluation for redeployment opportunities, reflecting a measured approach to human capital optimisation.

Continued Investment in AI and Strategic Priorities

TCS maintained its commitment to transforming into an AI-enabled IT services company through sustained investments across five strategic pillars outlined during its analyst day. Seksaria confirmed annual investments of approximately $1 billion through P&L across these priority areas.

The strategic investment areas include:

• Talent readiness and capability building
• Internal transformation initiatives
• AI-ready service offerings development
• Customer AI journey support
• New horizon exploration and innovation

Management indicated that while the investment mix may evolve, overall spending on strategic priorities will continue, reflecting confidence in long-term growth prospects despite near-term exceptional costs. The company's focus on AI transformation and future-ready skills positions it to capitalise on emerging market opportunities while maintaining operational discipline.

Tata Consultancy Services is witnessing a gradual improvement in demand conditions as clients demonstrate increased willingness to invest in projects that deliver clear and immediate returns on investment. The positive momentum, first observed in the second quarter, has continued into Q3 and is expected to extend into Q4, according to company management.

AI Demand Accelerates Across Client Base

The company's artificial intelligence portfolio has emerged as a significant growth driver, with management reporting substantial progress across multiple metrics:

Executive Director, President and COO Aarthi Subramanian highlighted that while discretionary spending has not broadly rebounded, specific areas—particularly artificial intelligence—have demonstrated clear uptick. The number of AI-led projects executed in Q3 increased compared to Q2, indicating growing demand in targeted segments.

Full-Stack AI Strategy Drives Competitive Position

CEO and Managing Director K Krithivasan outlined TCS' comprehensive approach to AI services, rejecting suggestions that Indian IT companies lack credible AI capabilities. The company unveiled its full-stack AI strategy during the quarter, encompassing infrastructure to intelligence solutions. This strategy enables TCS to support customers across multiple layers, including building AI data centres, developing models, creating agentic platforms, and deploying enterprise-wide solutions.

The company is proactively engaging clients through "innovate with AI" sessions, helping identify, implement, and scale high-impact AI use cases while accelerating production deployment timelines. Management expressed confidence in TCS' ambition to become the world's largest AI-led services company.

Revenue Performance and Market Dynamics

TCS reported solid operational performance during the quarter:

The revenue growth reflected typical Q3 seasonality patterns, with balanced contributions from both international and domestic segments. Management clarified that the BSNL deal remained largely flat and did not materially contribute to growth during the quarter.

Margin Management and Competitive Strategy

Addressing margin pressure concerns amid heightened competition, Krithivasan explained that TCS maintains competitiveness at the deal level while managing margins at a portfolio level. The company does not impose margin thresholds at individual project levels, instead focusing on efficient delivery, productivity gains, and pyramid optimization after securing deals. Pricing conditions have remained stable to slightly positive.

Market Outlook and Growth Prospects

Management expressed cautious optimism about future prospects, noting that US market clients remain selective rather than fully discretionary in their spending approach. Decision-making processes have improved compared to previous quarters, with clients evaluating projects based on specific payback periods and value propositions.

While stopping short of reaffirming formal guidance, Krithivasan indicated that TCS continues to aspire to deliver higher international revenue in FY26 compared to FY25. AI-led services are expected to remain a key growth engine, supported by the company's comprehensive strategy and expanding client engagement across verticals.