TCS flags no let-up in client caution after tepid Q1
Bengaluru: Tata Consultancy Services Ltd (TCS) rang in the information technology (IT) industry’s earnings season with a report card that was virtually unchanged from the previous quarter.
Slowing growth, weakening profitability, a shrinking order book and an unwavering warning from India’s largest IT services company on customer spending have reinforced concerns that the country’s $300 billion IT services sector is heading for another lackluster year.
The Mumbai-based company reported consolidated revenue of $7.62 billion in the first quarter, up 0.04% sequentially and 2.7% year-on-year. Analysts had predicted even lower figures: $7.52 billion, at least 34 analysts surveyed Bloomberg.
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TCS reported consolidated revenues of $7.62 billion, up 0.04% sequentially and 2.7% year-on-year. Net profit decreased by 1.3% quarterly and 2.2% annually to $1.46 billion.
TCS’ slowing growth, weak profitability and shrinking order book are raising concerns that the $300 billion IT services industry could face another lackluster year due to customers’ wariness in spending.
TCS’s annual AI revenue reached $2.6 billion, contributing to better-than-expected overall revenue, especially in the BFSI sector, despite declines in other areas such as retail.
TCS’s management expects demand to increase in Q2, citing the backlog of technology projects from customers, even as the current macroeconomic environment remains uncertain.
Yes, shares of TCS are down 36% since the beginning of the year; This reflects broader challenges in the IT sector and may signal investors’ concerns about future growth prospects.
Most of the increase came from financial institutions compensating retail companies for business losses. The company derives one-third of its income from banks.
Consolidated net profit decreased by 1.3% quarterly and 2.2% annually to $1.46 billion. And profitability fell 130 basis points, driven by increases in wage costs. The company also announced a dividend distribution. ₹12 per share.
In a post-earnings conference call Thursday after the results were announced, company management said its interpretation of demand was unchanged from what was outlined in March.
“I don’t know when this (macroeconomic environment) will change because generally most of the ongoing conflicts are continuing and we have also seen many situations where our customers want to postpone some projects during the quarter,” TCS CEO K. Krithivasan said during the call.
TCS’s larger partner, Accenture Plc, also said that customer budgets did not increase and they postponed projects. At the company’s post-earnings press conference on June 18, CEO Julie Sweet said customers are spending differently with artificial intelligence (AI), but budgets are not increasing.
Earnings from TCS, the first major Indian IT company to report its quarterly results, set the tone for the industry. The weak performance is unlikely to reassure investors ahead of results from Infosys, HCLTech and Wipro, as customers continue to postpone discretionary technology spending amid geopolitical uncertainty even as advances in artificial intelligence and automation tools are reshaping traditional software development and maintenance efforts.
However, despite the dire situation, TCS remained optimistic and Krithivasan said he expected demand to pick up in the second quarter; “primarily because our customers have a significant backlog of pent-up technology.”
Like Accenture, TCS’s total order bookings were also a pain point. While Accenture’s new order bookings in the March-May period were at an almost two-year low, TCS’s new orders of $9.5 billion in the first quarter were significantly lower than the previous quarter and marginally better than the October-December 2025 period.
Analysts said TCS’s revenue was higher than expected and attributed the lack of growth to the West Asia conflict.
“Revenue was better than expected due to AI work as part of the company’s major BFSI deals won in the last two years,” said Amit Chandra, vice president at HDFC Securities, adding that this helped the company offset deflation in its consumer business affected by supply chain disruptions triggered by the West Asia war.
Meanwhile, the company’s operating margin fell 130 basis points (bps) from the previous quarter (100 basis points equals 1%) to 24%. Much of that decline was due to its pay increases during the quarter and rising wage costs after increasing its workforce by 9,279 to 593,798 employees at the end of June.
The company also outlined new hiring plans. “We hired 14,000 campus graduates last quarter and as we speak, we are at top universities across the country and we are hiring talent specifically looking for AI-specific roles,” Sudeep Kunnumal, chief human resources officer at TCS, said during the company’s post-earnings conference call.
Aarthi Subramanian, chief operating officer of TCS, said during the interview that AI is being implemented much earlier than before. “Whether it’s in operations (IT operations) or transformation, AI is part of the day one offering and execution, so that gives a certain impetus to transformation and also execution.”
On Thursday, the company reported annual AI revenue of $2.6 billion. In early April, it reported annual AI revenue of $2.3 billion.
TCS’s flat results underscore a sharp selloff in shares since the start of the year due to artificial intelligence advancements that have left investors losing money on IT services firms.
The company’s shares, which fell to a six-year low last week, are down 36% since the beginning of the year, more than their peers. It ended Thursday down 0.52%. ₹2,047.75.
This comes after the company made arguably its biggest comeback in November last year, announcing its entry into the data center business. TCS is expected to invest $6.5 billion over six years to build 1 gigawatt (GW) of data center capacity.
However, since the land parcel required for the construction of the data centers has not been finalized, revenue is not expected from this business in the near future, which is expected to delay construction and therefore revenue.
