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, highlighting the growing role of AI in 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. On a constant currency basis, revenue grew 0.4% quarter-on-quarter, while dollar revenue stood at $7.2 billion. Earnings before interest and tax (EBIT) declined 3.1% sequentially 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 standout highlight of the quarter was TCS' AI business, with the company reporting that its annualised AI revenue reached $2.6 billion, up 13.6% sequentially, reflecting rising enterprise adoption of generative AI solutions.

Chief executive officer and managing director K Krithivasan said the company maintained growth momentum despite macroeconomic challenges, supported by a strong order pipeline and increasing AI adoption.

"Q1 FY27 reflects continued growth momentum and the strength of our strategic positioning, despite geopolitical and macro-economic headwinds. We delivered a strong order book of $9.5 billion, including a marquee AI-led transformation deal with SKF, while continuing to add clients across key revenue bands and scaling our AI business to a $2.6 billion annualized revenue run rate," Krithivasan said.

"As customers accelerate investments in AI, modernization, cybersecurity, sovereign cloud and platform simplification, our strong deal conversion, improving client mining and expanding ecosystem partnerships position TCS well to translate opportunity into sustained growth," he added.

During the quarter, TCS expanded partnerships with Google Cloud, Anthropic, NVIDIA and ServiceNow, while securing several AI-led transformation engagements. Among them was an $800-million strategic deal with global industrial giant SKF to modernise its IT landscape using AI-powered technologies.

Deal wins remain robust

The company reported a total contract value (TCV) of $9.5 billion during the quarter, indicating continued demand for large-scale digital transformation programmes despite an uncertain macroeconomic environment.

TCS also declared an interim dividend of ₹12 per equity share. Its IT services attrition stood at 13.6% on a last-twelve-month basis, while the workforce remained above 6.18 lakh employees at the end of June.

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, which has fallen nearly 6% during the same period.