TCS Q2 Revenue Beats Expectations

Tata Consultancy Services (TCS) reported September-quarter revenue slightly above market expectations on Thursday, helped by rising demand for artificial intelligence services and stronger growth in its banking business. India’s largest software services company posted consolidated revenue of ₹731.88 billion, up 11.2% from a year earlier. Reuters

Analysts tracked by LSEG had expected revenue of ₹731.48 billion. The beat was narrow, but it came as investors closely watch how artificial intelligence is reshaping India's $315 billion IT services industry.

TCS's quarterly net profit rose 15% to ₹138.84 billion, also ahead of the ₹137.97 billion analyst estimate. Reuters

The numbers show that AI is becoming a meaningful revenue stream for the company. But growth across the broader business remains measured.

AI Revenue Jumps to $3.1 Billion

TCS's annualised AI revenue climbed to $3.1 billion during the September quarter, up from $2.6 billion in the previous quarter.

That increase highlights a major shift underway across India's technology services sector. AI is putting pressure on the traditional billable-hours model, where companies charge clients based largely on the time spent by employees. At the same time, customers are spending more on AI implementation, automation and technology services.

"Revenue growth is in line with expectations but operating margin was slightly lower," said Anshul Jethi, an analyst at LKP Securities, according to Reuters. Reuters

For TCS, the challenge is turning rising AI demand into sustained growth while protecting margins.

The company's operating margin fell 120 basis points to 24.2%, mainly because of higher wages. Revenue growth excluding currency movements was only 0.5% sequentially, the weakest July-September performance in three years. Reuters

Banking Business Provides Support

TCS's banking and financial services division, which contributes roughly one-third of overall revenue, grew 3.9% year-on-year after adjusting for currency movements.

Deal wins also remained relatively stable. The company reported $9.6 billion in bookings during the quarter, compared with $9.5 billion in the previous quarter and $10 billion a year earlier. Reuters

That suggests client spending has not collapsed, even as companies remain selective about technology budgets.

Key Takeaways

• Revenue: ₹731.88 billion, up 11.2% year-on-year.
• Net profit: ₹138.84 billion, up 15% and slightly above estimates.
• AI revenue: Annualised AI revenue increased to $3.1 billion from $2.6 billion.
• Operating margin: Fell to 24.2% from higher wage costs.
• Deal wins: $9.6 billion, slightly above the previous quarter.

Indian IT Earnings Season Now Underway

TCS is the first major Indian IT services company to report September-quarter results, making its performance an early indicator for the sector.

Infosys, HCLTech, Wipro and Tech Mahindra are due to report their results in the coming weeks. Their commentary will be closely watched for evidence of whether AI is expanding technology spending or putting further pressure on traditional outsourcing revenues. Reuters

Accenture's recent outlook offered some encouragement, with strong annual growth expectations and improving conversion of signed contracts into revenue.

Still, TCS's modest sequential growth shows that the AI opportunity has not removed the wider pressures facing IT companies.

Looking Ahead

The next test for TCS will be whether its rapidly expanding AI business can offset slower traditional services growth and rising employee costs. Investors will also watch deal bookings, margins and client spending for signs of a broader recovery.

What do you think: can AI become the next major growth engine for India's IT sector?

Disclaimer: This report is based on Reuters reporting and publicly available company and market information; figures and developments may change as additional disclosures emerge.