Tata Consultancy Services has reported a notable decline in its financial performance for the third quarter, marking a challenging period for the IT services major.

Financial Performance Overview

The company's net profit experienced a significant downturn during the quarter, falling 14% on an annual basis. Additionally, the sequential performance showed an even steeper decline, with net profit dropping over 11.5% compared to the previous quarter.

Market Impact

The dual decline in both annual and sequential metrics indicates the company faced headwinds during the reporting period. The financial results reflect the broader challenges in the IT services sector and highlight the company's performance during this quarter.

The reported figures demonstrate the company's financial trajectory during the third quarter, with both year-over-year and quarter-over-quarter comparisons showing negative growth in net profit metrics.

Tata Consultancy Services reduced its workforce by 11,151 employees on a net basis in Q3FY26, continuing the restructuring and role realignment initiatives at India's largest IT services company. The workforce contraction reflects broader organizational changes as the Mumbai-headquartered IT major optimizes its cost structure amid shifting market demands and rapid technology evolution.

Workforce Reduction Details

The company's total employee base declined to 5,82,163 at the end of Q3FY26, down from 5,93,314 in the September quarter. This sequential drop extends the workforce contraction trend observed in previous quarters, marking a significant shift for TCS, which reported its first headcount decline since listing in 2004 during FY24.

Voluntary attrition remained elevated at 13.5% on a last-twelve-month basis in IT services, suggesting the workforce decline was driven primarily by planned restructuring actions rather than unexpected employee exits.

Financial Impact and Exceptional Charges

TCS reported a 14% year-on-year decline in consolidated net profit to ₹10,657 crore for the October-December quarter. The profit decline was primarily attributed to exceptional items totaling ₹2,128 crore, stemming from statutory impacts of new labour codes implemented in India.

The company assessed and disclosed the incremental impact of labour law changes based on legal opinions and available information. The incremental costing primarily arose from changes in wage definition under the new labour codes.

Restructuring Cost Optimization

Despite the workforce reduction and exceptional charges, TCS achieved significant cost optimization in restructuring expenses. The company's restructuring costs declined by over 77% to ₹253 crore in Q3FY26, indicating a tapering of one-time costs associated with ongoing workforce realignment initiatives.

AI Business Momentum

Amid the organizational restructuring, TCS highlighted continued growth in its artificial intelligence business segment. The company's AI business achieved an annualised revenue rate of $1.8 billion, demonstrating strong momentum in emerging technology services despite broader workforce optimization efforts.

Strategic Realignment Context

The headcount reduction represents part of a broader strategic realignment at TCS as the company adapts to evolving client demands and technological shifts in the IT services industry. The workforce optimization, combined with reduced restructuring costs and strong AI business performance, indicates the company's focus on operational efficiency while investing in high-growth technology areas.