TCS Q3 profit falls 14% YoY on exceptional charges; revenue sees modest growth, Rs 57 dividend declared

Tata Consultancy Services (TCS) reported a sharp year-on-year decline in Q3 FY26 net profit, weighed down by large exceptional charges linked to restructuring, labour law changes, and a long-running US legal dispute. However, the IT major posted steady sequential growth and announced a hefty dividend.

TCS’ consolidated net profit for Q3 FY26 fell 14 percent on-year to Rs 10,657 crore, sharply below Street estimates. A CNBC-TV18 poll had estimated net profit of Rs 12,771 crore. Revenue for the quarter rose 5 percent year-on-year to Rs 67,087 crore, broadly in line with expectations.

Excluding exceptional items, TCS reported net profit of Rs 13,438 crore, up 8.5 percent year-on-year, which showed that the headline profit decline was driven largely by one-off costs rather than operating weakness.

Exceptional items weigh on reported profit

During the quarter, TCS booked significant exceptional charges on three counts.

First, the company incurred restructuring expenses following workforce rationalisation initiatives announced in July 2025. These included termination benefits paid to employees whose deployment was no longer feasible, disclosed as exceptional items due to their size and non-recurring nature.

Second, TCS recognised a statutory impact arising from the implementation of India’s new Labour Codes. The company booked an incremental charge of Rs 2,128 crore under exceptional items, primarily due to changes in the definition of wages, including Rs 1,816 crore towards gratuity and Rs 312 crore towards long-term compensated absences.

Third, TCS provided for a major US legal liability related to a long-standing case filed by Computer Sciences Corporation (CSC). During the quarter, the company made a provision of Rs 1,010 crore towards compensatory and exemplary damages after a US appellate court upheld liability, though it narrowed the scope of the injunction. TCS also provided Rs 342 crore towards pre- and post-judgment interest. The company said it continues to pursue legal remedies and believes it has a strong case.

Operating performance remains steady

On an operational basis, TCS reported stable margins and healthy deal momentum. Operating margin for the quarter stood at 25.2 percent, largely flat sequentially, while cash flow from operations exceeded net income, reflecting strong cash conversion. In constant currency terms, revenue grew 0.8 percent sequentially. The company reported a total contract value (TCV) of $9.3 billion for the quarter, indicating steady demand despite a cautious global technology spending environment.

TCS also reported annualised AI services revenue of $1.8 billion, with management highlighting continued traction in AI-led engagements across cloud, data, cybersecurity, and enterprise transformation. K Krithivasan, Chief Executive Officer and Managing Director, said: “The growth momentum we witnessed in Q2FY26 continued in Q3FY26. We remain steadfast in our ambition to become the world’s largest AI-led technology services company, guided by a comprehensive five-pillar strategy."

Dividend announced

The board declared a dividend of Rs 57 per share, including a special dividend of Rs 46 per share. The record date has been set as January 17, 2026, with payment scheduled for February 3, 2026. TCS shares rose 1.1 percent to close at Rs 3,243 on the NSE ahead of the results announcement. The stock has fallen more than 24 percent over the past year, with the company currently valued at about Rs 11.75 lakh crore.

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