India’s largest software exporter TCS results show more profit than analysts expected. But the underlying revenue barely moved, and the fastest-growing part of the business is AI
Tata Consultancy Services Ltd. gave investors a better quarter than they had feared. Whether it gives them a reason to buy a stock that has lost about a third of its value this year is less clear.
TCS Q2 results show a net profit of ₹13,884 crore for the three months to September, up 15% from ₹12,075 crore a year earlier and 4% higher than the June quarter. That’s higher than brokerage forecasts.
HDFC Institutional Equities had expected about ₹13,639 crore and Emkay Global about ₹13,751 crore. Revenue rose 11.2% to ₹73,188 crore. The board declared a second interim dividend of ₹12 a share, with a record date of 14 October and payment on 30 October.
The numbers beneath
The headline growth is less impressive than it looks. Part of the 15% profit increase reflects a weak base, since the year-earlier quarter was weighed down by restructuring costs. More importantly, most of the revenue growth came from the falling rupee.
When the rupee weakens, every dollar TCS earns abroad converts into more rupees, inflating reported revenue without any increase in work.
Stripping out currency effects tells the real story. In constant currency, revenue grew just 0.5% from the June quarter. International revenue rose 1.2% on the same basis.
Operating margin held at 24% and net margin at 19%, which shows cost discipline but not momentum.
AI: the growth engine and the threat
The striking figure is artificial intelligence. TCS said its annualised revenue from AI work exceeded $3.1 billion, more than 10% of total revenue, up from $2.6 billion three months earlier. That is growth of nearly a fifth in a single quarter, in a business that otherwise barely grew.
This creates a tension at the heart of the Indian IT model. The industry built its success on supplying large numbers of skilled engineers to maintain and build systems for global clients.
AI tools let clients achieve the same results with fewer people. Clients increasingly expect those productivity gains to show up as lower prices. So while TCS wins new AI projects, some of its traditional revenue is quietly shrinking as automation replaces billable hours.
The question for investors is which effect wins. If AI revenue keeps growing at its current pace, it could eventually lift the whole company. If the pricing pressure on traditional work accelerates, AI gains may only offset losses elsewhere.
One quarter of strong AI numbers does not settle that debate, but it shows TCS is at least positioned on the right side of the change.
Deals and hiring
Other indicators were steady rather than strong. The total contract value of new deals rose to $9.6 billion, in line with the $8 billion to $10 billion range analysts expected. That suggests clients are still signing work, even if they are spending cautiously.
Hiring sent a mixed message. TCS added 4,258 employees on a net basis, taking its workforce to 598,056. For a company of that size, the increase is modest, consistent with an industry that needs fewer new hires per dollar of revenue as AI spreads.
What it means
TCS sets the tone for Indian IT each quarter. HCLTech reports on 12 October and Infosys on 23 October. A profit beat with flat underlying growth is likely to be the pattern: companies protecting margins and dividends while waiting for client spending to recover.
The shares closed at ₹2,075.25 on BSE on Thursday, before the results, down about 35% for the year. That fall has made Indian IT cheaper than it has been in years. The September-quarter numbers do not show a recovery, but they do show resilience: steady profits, generous payouts and a credible AI business.
For investors deciding whether the sector’s lower valuation is an opportunity or a sign of permanent decline, the answer now depends less on any single quarter than on how quickly AI revenue can grow faster than traditional revenue shrinks.
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