Tata Consultancy Services (TCS) has released its Q3 FY26 earnings report, revealing a mixed financial performance. While the IT giant saw a rise in revenue, its profit experienced a significant dip. The company's share price is currently in focus as analysts weigh the implications of these results and offer their outlook on the stock's potential.
Key Financial Highlights:
- Revenue: TCS reported a nearly 5% year-on-year (YoY) increase in revenue from operations, reaching ₹67,087 crore compared to ₹63,973 crore in the same quarter last year. This also represents a 2% sequential increase from the previous quarter. In constant currency terms, revenue grew by 0.8% quarter-on-quarter but declined 2.6% year-on-year.
- Profit: The company's consolidated net profit fell by nearly 14% YoY to ₹10,657 crore, down from ₹12,380 crore in the corresponding quarter of the previous fiscal year. The profit also declined 11.7% sequentially.
- Dividend: TCS has declared a third interim dividend of ₹11 per share and a special dividend of ₹46 per share. The record date for the dividend is January 17, 2026, and the payment date is set for February 3, 2026.
- Total Contract Value (TCV): TCS's Q3 total contract value stood at $9.3 billion.
- AI Revenue: Annualized AI services revenue stood at $1.8 billion, with a 17.3% quarter-on-quarter growth in constant currency.
- Margins: The operating margin for the quarter came in at 25.2%, compared to 24.5% YoY. Net margins improved to 20%.
Factors Affecting Profitability:
TCS's profitability was impacted by a few key factors:
- One-time Charge: The company incurred a one-time charge of ₹2,128 crore due to the implementation of new labor laws.
- Legal Claim Provision: TCS made a provision of ₹1,010 crore towards a legal claim.
Growth Drivers and Business Segments:
- AI Services: TCS is focusing on AI-led technology services, with significant growth in its AI services. Annualized AI services revenue reached $1.8 billion during the quarter, demonstrating the increasing importance of AI in TCS's business.
- BFSI: The Banking, Financial Services, and Insurance (BFSI) sector remains the largest contributor to TCS's revenue.
- Geographic Performance: North America is TCS's largest market, followed by the United Kingdom and Continental Europe.
Analyst Perspectives:
Despite the profit decline, analysts remain optimistic about TCS's future potential. The company's focus on AI, strong order book, and consistent dividend payouts are seen as positive indicators. The average share price target for TCS is ₹3621.20, representing a potential upside of 11.78% from the last price of ₹3239.60. Some analysts predict target prices that could result in up to 50% upside. However, some caution is warranted due to the company's valuation and debt levels.
Stock Outlook:
TCS shares closed at ₹3,207.80 on the day of the earnings announcement, up 0.99% from the previous close. The stock's technical setup is currently viewed as sideways to bearish on the daily chart.
