Impact of labor code, provision of legal claims drag down TCS Q3 net profit by 14% to ₹ 10,720 crore

Tata Consultancy Services Ltd (TCS) reported a 14% decline in net profit to ₹10,720 crore for the third quarter ended December 31, 2025 from ₹12,444 crore a year ago due to the impact of new labor laws of ₹2,128 crore, provision for legal claims of ₹1,000 crore and ₹2,050 crore for termination of employees during the quarter.

The company laid off 1,800 employees in the quarter, and the “layoffs” will continue this quarter, the company told analysts on a conference call. As of December 31, 2025, the global headcount was 5,82,163 and the attrition rate was 13.5% over the 12-month period, the company said.

During the quarter, the company’s revenue grew by 5% (y-o-y) to ₹ 67,087 crore.

The board declared a dividend of ₹57 including ₹46 per share as special dividend. The cut-off date is 17 January 2026 and payment will be made on 3 February 2026.

Annualized AI services revenue of $1.8 billion; quarter-over-quarter (QoQ) in constant currency rose by 17.3%. The operating margin remained gradually stable at 25.2%. Net margin at 20.0% was up 40 bps quarter-over-quarter.

The BFSI segment grew by 1.6% YoY but was affected by seasonality. Consumer Business decreased 2.7%, Life Sciences & Healthcare and Energy, Resources & Utilities each increased 2.2%, Manufacturing and Technology Services each increased 1.7%, Communication & Media decreased 1.6%, and Regional Markets & Other increased 19.4% year-over-year.

By region, North America was up 1.3%, Latin America was up 1.4%, the UK was down 3.2%, Continental Europe was up 1.4%, Asia Pacific was up 3.5%, India was down 34.3% and MEA was up 3.8% year-over-year.

K. Krithivasan, CEO and Managing Director said, “The growth 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.”

He said the momentum would continue into the remainder of the financial year and the North American market would improve further.

“Our AI services now generate $1.8 billion in annual revenue, reflecting the significant value we deliver to clients through targeted investments across the entire AI stack, from infrastructure to intelligence,” he said.

Aarthi Subramanian, managing director, president and chief operating officer, said, “This quarter continued to see acceleration in AI. We helped customers identify valuable AI opportunities and deploy solutions faster.”

“Our customers continue to invest in cloud, data, cyber and enterprise transformations to be AI-ready. With the acquisition of Coastal Cloud, we have further strengthened our Salesforce capabilities, building on our investment in ListEngage,” she said.

Samir Seksaria, Chief Financial Officer, said: “Our sustained margin performance and strong cash conversion this quarter reflects our disciplined execution and financial resilience.”

“Underpinned by a robust balance sheet, we continue to confidently invest in areas of strategic growth. Executing our five-pillar AI strategy at speed and scale is critical to our transformation into an AI-powered business and delivers long-term value to our shareholders,” he said.

Sudeep Kunnumal, Chief Human Resources Officer, said, “This quarter, it has more than 217,000 associates with advanced AI skills directly supporting client success at scale. We doubled our intake of highly skilled recent graduates and rapidly expanded our next-generation talent pool.”

“The passion and commitment our collaborators are showing to master next-generation capabilities gives us the confidence to innovate responsibly and deliver sustainable value as AI transforms the service landscape,” he added.

Published – 12 Jan 2026 17:42 IST