TCS profit slips sequentially as AI business crosses $2.6-billion run rate in Q1

Tata Consultancy Services (TCS) kicked off the first-quarter earnings season with a mixed performance, reporting a sequential decline in profit even as its artificial intelligence (AI) business continued to scale rapidly, stressing the technology shift underway across the global IT services industry.

The country's largest IT services company reported a 2.7% quarter-on-quarter decline in consolidated net profit to ₹13,349 crore for the April-June quarter, compared with ₹13,718 crore in the preceding quarter. Revenue, however, rose 2.2% sequentially to ₹72,275 crore from ₹70,698 crore, while earnings before interest and tax (EBIT) fell 3.1% to ₹17,317 crore.

TCS said the quarter included an exceptional legal provision of ₹668 crore related to the settlement of the CSC litigation in the US. Excluding the one-time charge, the company reported net income of ₹13,849 crore and an operating margin of 24%.

AI business gathers momentum

The biggest highlight of the quarter was TCS' AI business, with the company saying its annualised AI revenue has crossed $2.6 billion, representing a 13.6% sequential increase.

Chief executive officer and managing director K Krithivasan said AI adoption is moving beyond pilot projects to enterprise-wide transformation programmes.

"We are seeing clients increasingly move from experimentation to scaling AI across their enterprises. Our investments in AI and strategic partnerships continue to position us strongly to capture this opportunity," he said.

During the quarter, TCS expanded collaborations with technology partners including Google Cloud, Anthropic, NVIDIA and ServiceNow, while securing several AI-led transformation deals across industries. These included an $800-million engagement with SKF to modernise its IT landscape using AI-powered technologies.

Deal pipeline remains healthy

The company reported a total contract value (TCV) of $9.5 billion during the quarter, reflecting continued demand for large transformation programmes despite macroeconomic uncertainties.

Commenting on the results, chief financial officer Samir Seksaria said the company remained focused on disciplined execution.

"Our continued investments in talent, capability building and innovation, coupled with disciplined execution, helped us deliver a resilient performance despite the impact of the exceptional item," he said.

TCS also announced an interim dividend of ₹12 per equity share. The company reported an IT services attrition rate of 13.6% over the last 12 months, while its workforce stood at over 6.18 lakh employees at the end of the quarter.

Shares of TCS ended marginally higher at ₹2,059 apiece on the NSE on Thursday ahead of the earnings announcement. The stock has declined more than 39% over the past year, underperforming the benchmark Nifty 50 index, which has fallen nearly 6% during the same period.