Tata Consultancy Services (TCS), India's largest IT services company, reported a consolidated net profit of ₹12,075 crore for the second quarter, marking a 5.4% decline from the previous quarter. The company also addressed concerns about the new $100,000 annual H-1B visa fee and reported its first constant currency revenue growth in three quarters.

Financial Performance

TCS's Q2 results show a mixed picture:

The company's revenue grew by 3.7% quarter-on-quarter, reaching ₹65,799 crore. However, the net profit declined by 5.4% compared to the previous quarter's ₹12,760 crore.

Key Highlights

• Constant currency revenue growth of 0.80% sequentially, marking the first growth after two quarters of decline.
• TCS reported a one-time restructuring expense of ₹1,135 crore.
• Total contract value increased to $10 billion from $9.4 billion in the previous quarter.

Workforce Reduction

TCS reported a significant decline in its workforce, with the total number of employees falling below 600,000. The company reduced its workforce by 1% at mid and senior levels due to skills mismatch, with 20,000 headcount reduction from voluntary and involuntary resignations.

H-1B Visa Concerns

TCS dismissed concerns about the new $100,000 annual H-1B visa fee, stating it has only 500 associates in the US on H-1B visas. The company emphasized that its business model can adapt to immigration policy changes.

Market Response

TCS shares closed 1.14% higher at ₹3,061.70 but have declined 29% over the past 12 months.

Outlook

While TCS has shown its first constant currency revenue growth in three quarters, the impact of global economic uncertainties may continue to pose challenges. The company's ability to maintain this growth trajectory and improve profitability will be closely watched by investors and industry analysts in the coming quarters.

As the IT services landscape evolves, TCS's performance in navigating these changes and maintaining its market leadership will remain a key focus for stakeholders. The significant workforce reduction and the company's stance on H-1B visa changes indicate a strategic shift in its operational approach, which may shape the company's future growth and efficiency.

Tata Consultancy Services (TCS), India's largest IT services company, has reported robust financial results for the second quarter, showcasing strong growth across all sectors and improved profitability. Additionally, the company has announced significant expansions into AI infrastructure development, completed a major acquisition, and provided updates on cybersecurity, data center plans, and workforce reduction.

Record-Breaking Order Book and Strong Deal Pipeline

TCS achieved a significant milestone this quarter, securing a $10 billion order book, demonstrating the company's continued ability to win large deals and maintain its competitive edge in the global IT services market. A TCS executive reported strong momentum in the company's deal pipeline, further reinforcing the positive outlook.

Financial Highlights

For Q2, TCS reported:

The company's EBIT (Earnings Before Interest and Taxes) for Q2 stood at ₹16,336.00 crore, up from ₹15,465.00 crore in the previous quarter, surpassing market estimates of ₹16,103.00 crore. This represents a significant improvement in profitability.

Margin Expansion

TCS demonstrated strong operational efficiency, with its EBIT margin expanding to 24.83% from 24.15% quarter-on-quarter. This 68 basis points improvement exceeded analyst expectations of 24.7%, highlighting the company's ability to enhance profitability amid challenging market conditions.

Sector-wise Performance

The company reported broad-based growth across all verticals:

• Banking, Financial Services, and Insurance (BFSI): 1.1% QoQ growth in constant currency
• Technology & Services: 1.8% QoQ growth in constant currency
• Life Sciences and Healthcare: 3.4% QoQ growth in constant currency
• Manufacturing: 1.6% QoQ growth in constant currency
• Communications, Media, and Information: 0.8% QoQ growth in constant currency

Strategic Initiatives

TCS continues to focus on digital transformation and AI-led services, positioning itself as a key player in helping clients navigate the rapidly evolving technology landscape. The strong order book reflects the trust global enterprises place in TCS's capabilities to drive their growth and transformation agendas.

New AI Data Center Subsidiary

TCS has received approval to establish a fully owned subsidiary in India. This new entity will focus on creating multiple AI and sovereign data centers for infrastructure and technology services. This initiative represents TCS's strategic expansion into AI infrastructure development within the domestic market.

Acquisition Update

TCS has completed the acquisition of Listening Midco, with the final purchase price reaching $72.8 million. This acquisition is expected to strengthen TCS's capabilities and market position.

Cybersecurity and Data Center Expansion

TCS executives have confirmed that the company's systems remained unaffected by recent cyberattacks, and other customers experienced no impact. This reassurance underscores TCS's robust cybersecurity measures.

A TCS executive outlined plans for data center expansion, aiming to achieve 1GW data center capacity within the next 5-7 years. To support this growth, TCS is actively seeking equity partners for the expansion.

Data Centre Unit Strategy

TCS announced that its data centre unit will primarily target hyperscalers and governments as key customers. A company executive indicated that the unit will require 18-24 months before it begins generating revenue.

Workforce Reduction Update

A TCS executive has confirmed that the company has implemented only 1% of its planned 2% layoffs. The technology services company had announced plans to reduce its workforce by 2%, but execution remains in early stages with just half of the intended reduction completed so far.

Jaguar Land Rover Systems Update

A TCS executive reported that Jaguar Land Rover (JLR) systems are now operational. Projects that were delayed due to an incident are expected to begin soon. This update indicates a resolution to previous issues and a return to normal operations for JLR-related projects.

Outlook and Future Challenges

While TCS maintains a robust order book and improving profit margins, the company faces some challenges ahead. A TCS executive warned that restructuring costs will continue for the next two quarters, potentially impacting short-term profitability. However, the company anticipates improved growth in the second half of FY26, while noting no significant shift in overall demand conditions.

With the new AI data center initiative, strategic acquisitions, and investments in cutting-edge technologies, TCS appears well-positioned to capitalize on the growing demand for digital, cloud, and AI services. The company's ability to win large deals, improve operational efficiency, and invest in emerging technologies bodes well for its future growth prospects in the competitive global IT services market.