TCS reports a 14% year-on-year drop in Q3 profit due to exceptional items, while revenue posts limited growth; a dividend of Rs 57 is announced
Tata Consultancy Services reported a 14% year-on-year drop in net profit for Q3 FY26 to ₹10,657 crore, falling short of market expectations due to hefty exceptional costs related to restructuring, labor law changes, and a US legal provision. Adjusting for these one-time items, profit increased by 8.5%, and the company announced a dividend of ₹57 per share.
Tata Consultancy Services (TCS) reported a sharp year-on-year decline in net profit in the third quarter of FY26, hit by large one-off charges related to restructuring, changes in labor laws, and a long-running US legal dispute.
However, the IT major continued to post sequential growth and announced a hefty dividend.
TCS’s consolidated net profit fell 14 percent year-on-year to Rs 10,657 crore in the third quarter of FY26, well below the Street’s estimates.
A CNBC-TV18 poll had estimated a net profit of Rs 12,771 crore. Revenue rose 5 percent year-on-year to Rs 67,087 crore in the quarter, largely in line with expectations.
Excluding one-off items, TCS posted a net profit of Rs 1,100 crore. 13,438 crore, a year-on-year increase of 8.5 per cent, indicating that the decline in core profit was mainly due to one-time expenses rather than operating weakness.
Exceptional charges put pressure on reported profit
During the quarter, TCS booked significant exceptional charges on three counts.
Firstly, the company incurred restructuring costs following a workforce optimization initiative announced in July 2025. This included termination benefits paid to employees whose roles were no longer required, which were reported as exceptional items due to their size and non-recurring nature.
Secondly, TCS recognized the legal implications arising from the implementation of India’s new labor codes.
The company recorded an incremental charge of ₹2,128 crore under exceptional items, primarily due to changes in the definition of salary, comprising ₹1,816 crore for gratuity and ₹312 crore for long-term compensated absences.
Thirdly, TCS addressed a significant US legal liability related to a long-standing case filed by Computer Sciences Corporation (CSC).
During the quarter, the company made a provision of ₹1,010 crore for compensatory and exemplary damages after a US appeals court upheld the liability, although it narrowed the scope of the injunction.
TCS also paid ₹342 crore for pre- and post-judgment interest. The company stated that it is pursuing legal remedies and believes it has a strong case.
Operating results continue to be stable
On an operational basis, TCS reported stable margins and healthy deal momentum.
Operating margin for the quarter was 25.2 percent, largely stable 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 total contract value (TCV) of $9.3 billion in the quarter, reflecting stable demand despite a cautious technology spending environment globally.
TCS also reported annual AI services revenue of $1.8 billion, with management citing continued growth in AI-led growth across cloud, data, cybersecurity, and enterprise transformation.
Chief Executive Officer and Managing Director K. Kritivasan said, “The growth momentum we saw 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.”
The company declares a dividend
The board has declared a dividend of Rs. 57 per share, which includes a special dividend of Rs. 46 per share.
The record date has been fixed on January 17, 2026, and the payment is scheduled on February 3, 2026. TCS shares closed 1.1 percent higher at Rs. 3,243 on the NSE ahead of the results announcement. The company’s shares have fallen more than 24 percent in the last year, currently valuing the company at around Rs. 11.75 lakh crore.
