TCS logs first annual revenue decline since listing despite Q4 recovery

Tata Consultancy Services (TCS) ended FY26 with a modest recovery in quarterly growth, but that was not enough to offset a broader slowdown that pushed it into its first full-year revenue decline in dollar terms since listing.

The results underscore a changing demand environment where macro uncertainty and the early impacts of artificial intelligence (AI) are starting to weigh on the IT services giant’s traditional growth model, although the company expects a gradual recovery in FY27.

TCS on Thursday reported that full-year revenue fell 0.5% in dollar terms to $30.08 billion, while net profit rose 3.5%. Revenues rose 1.5% sequentially to $7.62 billion in the fourth quarter, indicating a slight increase in momentum toward the end of the year.

Much of the year-on-year decline was driven by weakness in its India business, whose revenue fell 32% in the period.

Income trends in rupee terms varied depending on foreign exchange movements. Fourth quarter revenues increased 5.4% sequentially ₹70,698 crore and full year revenue up 4.6%. ₹2,67,021 crore.

The company’s management struck an optimistic note on the outlook for FY27, especially amid rising macro volatility due to the West Asian conflict.

K. Krithivasan, managing director of TCS, said during the post-earnings analyst call on Thursday that despite global uncertainty, the company continues to see strong customer engagement and long-term deal commitments and is positioned for better performance next year.

Management’s optimistic comment comes as the company has struggled to grow above 5% in the last three years, slower than rivals Infosys Ltd and HCL Technologies Ltd. Its shares, at 19.28% on the BSE, also fell the most among its peers since January.

I’m not surprised

Of course, the decline in full-year revenue was expected by experts; TCS’s final figure beat the Bloomberg estimate of $28.55 billion from 46 analysts.

“The results are in line with expectations; there was a decline in revenues last year,” said Sushovon Nayak, chief IT analyst at Anand Rathi Institutional Equities.

“TCS needs to double down on winning more deals in BFSI, consumer, energy and utilities, which are likely to drive growth in the year. Also, bundling more legacy modernization deals and focusing on AI-related client businesses could spur growth going forward,” Nayak added.

Banks, consumer companies and utilities account for more than half of the company’s full-year revenue.

Clients that are not AI ready

On AI, the company said customers want to accelerate adoption, but customers are not ready for AI.

“We are working with our customers to close this gap by upgrading their infrastructure to be scalable and secure, modernizing their core applications, and establishing modern data foundations,” said Aarthi Subramanian, Chief Operating Officer of TCS, during the company’s analyst call. “A significant portion of technology spending is invested in these areas.”

A second expert said the decline in TCS’s revenue shows that AI is testing the basic model of the IT services industry.

“Clients are no longer buying effort, they are demanding results,” said Phil Fersht, CEO of HFS Research.

““AI is compressing delivery timelines, reducing headcount intensity and forcing providers to deliver more value with less revenue in the short term,” Fersht added. “This creates a real tension: strong bookings on one side, weak revenue realizations on the other.”

TCS reported annual AI revenue of $2.3 billion for January-March 2026.

profit splash

Meanwhile, the company’s net profit for the full year increased by 3.5% to $5.94 billion. This was despite $157 million in severance payments to laid-off employees, as well as the one-time impact of labor laws that would increase tip payments to employees.

Its profitability increased 70 basis points to 25%, which management attributed primarily to layoffs. One hundred basis points equals 1%.

Samir Seksaria, chief financial officer of TCS, said the company has successfully mitigated headwinds by improving business mix, productivity and realization by 100 basis points.

“Rebalancing the pyramid provided an 80 basis point contribution. Foreign exchange support also provided a 190 basis point benefit to margins,” he said during the company’s post-earnings analyst call.

This is in line with previous years where the company has traditionally maintained the highest profitability among its peers.

larger customers

Another pleasing development was that the company’s large customers increased by more than $100 million annually, and this figure increased by two to 66 in the last fiscal year.

In December, the company won a mega deal that generates more than $1 billion in revenue over 10 years. Telefónica UK is the British arm of Spanish telecoms giant Telefónica. The company renewed its billion-dollar IT transformation deal with UK-based retailer Marks & Spencer and also signed a mega deal with a US-based healthcare and pharmaceutical company.

The increase in margins came with a reduction in headcount. TCS finished the last fiscal year with 584,519 employees, a decrease of 23,460 from the previous year. Much of this can be attributed to last year’s largest layoff campaign. In July, the company said it would give marching orders to 12,200 mid- and senior-level employees who could not be reskilled.

According to a Mint At least 300, or 16%, of senior executives have left the company since the layoffs were announced, according to the April 6 report. The company incurred severance-related costs of $157 million last fiscal year. Management also announced companywide pay increases for all eligible employees, with top performers receiving “double-digit” raises.