TCS Q1 FY26 net profit rises 6%; misses estimate on revenue growth

TCS reports a 6% YoY rise in net profit for Q1 FY26, but misses revenue growth expectations. The company's revenue grew by just 1.3%, falling short of analysts' forecasts

The first-quarter performance of India’s largest IT services provider, Tata Consultancy Services (TCS), continued to reflect the impact of macroeconomic uncertainty and slow discretionary spending. The company’s management remained optimistic overall, but admitted that high single-digit growth in FY26 looks tough. 

TCS reported a net profit of ₹12,760 crore for the first quarter of FY26, up 6 per cent compared to ₹12,040 crore in the same period of FY25. 

Revenue grew 1.3 per cent year-on-year (Y-o-Y) in reported terms to ₹63,437 crore in Q1FY26. However, in constant currency terms, revenue declined 3.1 per cent Y-o-Y. Sequentially, the company’s revenue was down by 1.6 per cent, the slowest quarterly growth since Q1FY21, when revenue fell 4 per cent quarter-on-quarter due to the Covid-19 pandemic. Prior to that, TCS had reported a sequential revenue decline of 0.2 per cent in Q1FY18. 

 

TCS missed Bloomberg consensus estimates on revenue but beat expectations on net profit. Bloomberg had projected revenue of ₹64,655 crore and net profit of ₹12,253 crore. As TCS’s performance typically sets the tone for the Indian IT sector, the revenue miss may weigh down on the sentiment. American Depositary Receipts (ADRs) of Infosys and Wipro fell as much as 4.5 per cent on Thursday following TCS’s Q1 results.

 

Infosys ADRs dropped 3.7 per cent to $18.13, while Wipro’s fell 4.4 per cent to $2.94 at 20.15 hrs IST.

 

In terms of the order book, the total contract value (TCV) for the quarter stood at $9.4 billion, in line with expectations and up 13 per cent Y-o-Y. In Q1FY25, the TCV was $8.3 billion.

 

K Krithivasan, TCS’ chief executive officer and managing director, said: “During our last press meet, we had spoken about delays in decision-making and project starts in terms of in discretionary investments. This trend has continued and intensified this quarter, with global business facing disruptions due to conflicts, economic uncertainty, and supply chain issues.” 

 

TCS said new service lines, such as artificial intelligence (AI), cybersecurity, data, and modernisation, are seeing more investments from clients, although the company did not quantify the deals.

 

“The new service lines have grown well this quarter. We see strong demand for AI and data. AI for modernisation is coming out as a strong theme,” said Aarthi Subramanian, executive director, president, and chief operating officer, TCS.

 

The company’s Q1 performance across major markets remained weak, in line with the earlier quarters. The US and Europe continued to be soft. Revenue from India declined 21.7 per cent Y-o-Y, primarily due to the ramp-down of the BSNL deal. The US market declined 2.7 per cent, while the UK, previously a strong growth market, was down 1.3 per cent Y-o-Y. Continental Europe fell 3.1 per cent Y-o-Y.

 

In contrast, West Asia & Africa, Asia Pacific, and Latin America posted growth of 9.4 per cent, 3.6 per cent, and 3.5 per cent Y-o-Y, respectively.

 

Krithivasan added that the sequential decline of 3 per cent in revenue was due to a 0.5 per cent quarter-on-quarter fall in international business and a 2.8 per cent drop in domestic business. “If you remove the BSNL deal impact, we’ve reported growth. We believe international business will grow in FY26,” he said.

 

“This is a very volatile and uncertain environment. It is very hard for providers to cope up with the earlier growth trajectories. In such a scenario, maintaining stability is good enough. In TCS’s case, at least they are holding on to growth,” said D D Mishra, vice president and analyst at Gartner.

 

TCS reported an operating margin of 24.5 per cent in Q1FY26, which is a 30-basis-point sequential expansion. The improvement was driven by reduced third-party expenses and a one-off income tax gain.

 

“TCS reported a sequential revenue decline and a miss on estimates primarily due to the anticipated BSNL ramp-down. However, the international revenue decline of 0.5 per cent quarter-on-quarter in constant currency was largely in line. With a resilient business model, a robust deal pipeline, and leadership in emerging technologies, TCS remains a solid long-term investment despite near-term macro uncertainties that may prolong recovery. We maintain a ‘Buy’ rating on the stock,” said Shaji Nair, research analyst at Mirae Asset Sharekhan.

 

As of June 30, TCS’s total headcount stood at 613,069, an increase of 6,071 employees during the quarter.

 

Milind Lakkad, TCS’ chief HR officer, said: “Talent development is core to TCS. In this quarter, our associates invested 15 million hours in building expertise in emerging technologies, enabling them to lead our customers’ transformation journeys. It is gratifying to note that TCS now has 114,000 people with advanced AI skills.”