Tata Consultancy Services is expected to report sequential growth in revenue and profitability for the December quarter, with analysts anticipating margin expansion despite ongoing operational challenges. The software services giant will announce its third-quarter results, with Bloomberg estimates pointing to a 2% sequential rise in revenue alongside an 8% increase in both operating profit and net profit.

Financial Performance Expectations

Analysts project solid financial metrics for the quarter, with revenue growth supported by margin improvements. The company's EBIT margin is expected to expand significantly despite cost pressures from wage increases.

However, revenue growth in constant currency terms is expected to decline 2.18%, underscoring continued pressure on underlying growth momentum. Attrition is projected at 7.60% over the past 12 months, while total headcount is expected to reach 597,093.

Operational Dynamics and Market Factors

The December quarter is expected to reflect easing delays and deferrals in select verticals, providing some relief from earlier challenges. Margin movement will be influenced by the two-month impact of wage hikes for junior employees, furloughs, and restructuring-related costs. Analysts will closely monitor demand trends in key markets, deal wins, and management commentary on the timeline for any ramp-up under the BSNL project.

Analyst Expectations and Focus Areas

Investment firms have outlined specific expectations for the quarter. Investec anticipates 0.80% quarter-on-quarter growth in constant currency and 0.50% growth in US dollar terms, with delays and deferrals likely reduced and potential turnaround in the communications, media and entertainment vertical.

Jefferies expects revenue to rise 0.50% quarter-on-quarter in constant currency, led by international markets with no contribution from the BSNL deal. The firm projects margins to increase by 50 basis points, supported by headcount reduction and rupee depreciation, partly offset by wage hikes and furloughs.

Deal Activity and Strategic Outlook

Deal wins are expected to be in the ₹7.00 billion to ₹9.00 billion range according to multiple analyst estimates. An exceptional item related to severance pay of ₹800.00 crore is anticipated. Key focus areas for analysts include BFSI demand trends, performance in North America and Europe, calendar year 2026 budgets, restructuring impact on margins, and artificial intelligence adoption progress.

UBS notes that growth continues to be impacted by the BSNL ramp-down, while Nuvama highlights that execution on the BSNL extension deal has not yet started. The quarter's results will provide insights into the company's ability to navigate current market challenges while positioning for future growth opportunities.

Tata Consultancy Services has launched an aggressive strategic transformation, marked by significant acquisitions, infrastructure investments, and organizational restructuring as it seeks to position itself for future growth beyond traditional IT services.

Major Strategic Acquisitions and Investments

The Mumbai-based IT giant has made several landmark announcements in recent months. On December 10, TCS agreed to acquire tech consulting firm Coastal Cloud for $700 million in cash, representing its biggest deal since listing in 2004. This acquisition aims to strengthen the company's Salesforce software capabilities and is expected to close by end-January.

The acquisition followed TCS's announcement of a $6.5 billion investment over six years to build 1GW of data centre capacity, marking the company's biggest strategic pivot beyond its traditional IT services model. Additionally, reports suggest TCS is securing a $1 billion, 10-year contract from Telefónica UK, potentially ending a nearly two-year drought in billion-dollar deals.

Leadership Restructuring and Internal Changes

TCS is undergoing significant internal transformation under the leadership of Tata Sons chairman Natarajan Chandrasekaran, newly appointed COO Aarthi Subramanian, and chief executive K. Krithivasan. The company is promoting middle-level executives to leadership roles amid steady departures from the old guard.

Under Subramanian's oversight, routine operations are being re-examined with leaders regularly questioned about service line gaps and given clear timelines for improvements. Senior executives are being required to spend at least 90 minutes daily upgrading their skills in emerging technologies.

Market Performance and Analyst Sentiment

Despite strategic initiatives, investor sentiment remains cautious. Over the past six months, TCS has been the worst-performing stock among India's four largest IT services firms, declining 4.6%. In comparison, HCL Technologies fell 3.7%, while Infosys and Wipro gained 0.6% and 1.2%, respectively.

However, recent moves have begun to improve analyst sentiment. Four brokerages—ICICI Securities, Kotak Institutional Equities, Deven Choksey Research, and Elara Capital—have named TCS among their top picks for the third quarter, citing improving deal momentum and internal restructuring.

AI Revenue and Growth Metrics

At its analyst day on December 17, TCS disclosed key performance metrics for the first time. The company announced $1.5 billion in annualized revenue from AI as of September, with management stating that its AI business is growing faster than the overall company. The company also shared growth figures for its cybersecurity, digital marketing, and cloud businesses.

ICICI Securities analysts project 0.8% constant currency and 0.4% USD quarter-on-quarter revenue growth, led by BFSI and communication verticals based on deal ramp-ups from previous quarters.

Key Challenges and Outlook

Several factors continue to create uncertainty for TCS's future performance:

• Macroeconomic concerns: Geopolitical tensions in Venezuela and Iran could delay discretionary spending recovery, affecting the $283 billion Indian IT sector
• Growth constraints: Following completion of the $1.83 billion BSNL 4G deployment in 2025, sustaining growth remains challenging
• AI adoption timeline: While TCS reported significant AI revenue, widespread enterprise adoption remains in nascent stages
• Margin pressure: The data centre strategy involves heavy capital expenditure that could impact the company's current 24% operating margin, despite targeting 26-28%

Analysts expect the AI cycle to be more prolonged compared to the sharp post-pandemic cloud growth inflection, with meaningful growth recovery anticipated from FY27 onwards. The company's ability to execute its ambitious strategy while maintaining profitability will be closely watched as it prepares to announce third-quarter results.