Tata Consultancy Services has announced its December quarter results for Q3 FY26, revealing mixed performance with declining profits offset by strong growth in artificial intelligence services. The technology services exporter reported a significant 14% decline in net profit during the quarter, highlighting challenges in the current market environment.

AI Services Emerge as Key Growth Driver

Despite the profit decline, TCS demonstrated resilience through its artificial intelligence offerings, which have become a substantial revenue contributor. The company's AI services generated $1.8 billion annually, representing a notable 5.8% of the company's total revenue.

Q3 FY26 Financial Performance

The December quarter results reflected the challenging operating environment faced by technology services companies. TCS experienced a substantial decline in profitability during Q3 FY26, with net profit falling by 14% compared to the same period in the previous fiscal year.

Technology Spending Trends

The quarter demonstrated how artificial intelligence-driven technology spending has become a crucial factor in sustaining growth for IT services companies. TCS benefited from increased client investments in AI solutions, which helped offset some of the challenges faced during what is typically a weaker quarter for the technology services sector.

The company's focus on AI services appears to be paying dividends, with these offerings now representing a meaningful portion of overall revenue. This positioning in the AI space has enabled TCS to capture growth opportunities even during challenging market conditions.

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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.