TCS Q2 Profit Beats Estimates as AI Revenue Hits $3.1 Billion

A narrow beat to open the earnings season

Tata Consultancy Services was the first large Indian IT company to report for the September quarter, so investors read its numbers as an early guide to the rest of the sector.17 The Q2 FY27 results narrowly beat profit estimates. Underneath that, growth was still slow.

Consolidated net profit was ₹13,884 crore, up roughly 15% from ₹12,075 crore a year earlier and 4% from the June quarter.35 Revenue from operations rose 11.2% year-on-year to ₹73,188 crore and 1.3% sequentially.3 Bloomberg's consensus had expected ₹73,108 crore in revenue and ₹13,786 crore in profit, so the company came in just above on both.3 The CNBC-TV18 poll had a lower profit estimate of ₹13,673 crore, which made the profit beat look bigger against that benchmark.11 LSEG's average revenue estimate was ₹731.48 billion, which TCS also passed by a small margin.17

The board approved a second interim dividend of ₹12 per share.13 The stock rose about 5.5% to ₹2,187.60 in the next session.1 That move suggests investors cared more about the direction of the business than the size of the beat, after shares had slipped into the red during the trading day before the results came out.11

The headline numbers flatter the underlying trend

The 15% profit growth looks more impressive than the business underneath it. The year-ago quarter carried a ₹1,135 crore restructuring charge, and the June quarter included a ₹668 crore legal settlement.2 Without those one-off items, net profit grew about 7.6% from a year earlier and was nearly flat, up 0.3%, from the previous quarter.2 CNBC-TV18 calculated adjusted profit growth of 7.5%, which roughly matches.11 Coverage differs on which figure to use as the headline. Some outlets led with 15%, while others used the adjusted ₹12,904 crore base from a year ago.56 The adjusted figure is the better measure of how the business actually performed.

The rupee also inflated revenue growth. In dollar terms, revenue was $7,642 million, up just 0.2% from the June quarter and 2.4% from a year earlier.1 Constant-currency growth was 2.8% year-on-year and 0.5% sequentially.2 The gap between 11.2% rupee growth and 2.4% dollar growth mostly reflects the rupee weakening against the dollar, not stronger demand.2 Constant-currency growth also came in slightly below the CNBC-TV18 poll estimate of 0.6%.11

Margins were the clearest miss. EBIT was ₹17,553 crore against a poll estimate of ₹17,738 crore, and the EBIT margin of 24% fell short of the 24.2% forecast.11 Another tally put the margin at 23.98%, essentially unchanged from the previous quarter.8 The year-on-year comparison is less flattering: operating margin fell 120 basis points from 25.2%.2 Other income helped keep profit growth positive.15 The profit beat therefore came mainly from currency and items below the operating line, not from better operating efficiency.

International markets did the heavy lifting

The strongest part of the quarter was international business. International revenue grew 1.2% sequentially in constant currency, more than double the company-wide rate.4 CEO K Krithivasan said he was pleased with broad-based growth across all international markets and most industry segments.14 CNBC-TV18 reported that the UK grew fastest among the major markets.11 Other coverage noted that growth in North America, still the company's biggest market, remained subdued.

India pulled the total down. The domestic business fell 10.3% sequentially, which coverage linked to problems with the BSNL deal.1516 Nomura's account was that an Indian project had been deferred and that TCS expects it to come back over the medium term.12 The two explanations are compatible, but the deferral account is more hopeful. With India shrinking this sharply, the 1.2% international growth is the better guide to underlying demand.

By industry, financial services, which makes up 32.8% of revenue, grew along with manufacturing and technology & services, each by 2.5% to 3.1% sequentially in constant currency.2 Consumer business fell 0.7% sequentially and 1% from a year earlier. Energy, resources and utilities declined slightly, and regional markets fell 5.8% from the previous quarter.15

Strategic wins: Porsche, Best Buy and a $9.6 billion order book

Management presented its new deals as a turning point. Krithivasan called the Porsche and Best Buy agreements a new type of transformation partnership aimed at building repeatable platforms that use AI at scale.14 Coverage disagrees on how much these deals did for this quarter. One account said growth was mainly driven by Porsche and Best Buy in international markets.14 Before the results, however, CNBC-TV18 reported that the Porsche mega-deal was unlikely to count toward Q2 contract value, because the related MHP acquisition would close after the quarter ended.11 Given that timing, the deals look more like signals of future revenue than drivers of this quarter's results.

Total contract value was $9.6 billion, up 1.1% from $9.5 billion in the June quarter.11 That was down about 4% from $10 billion a year earlier, though it was broadly in line with what analysts expected.1113 Jefferies had expected deal wins to stay in the $9 billion to $10 billion range, and they did.18 Nomura noted that trailing-twelve-month deal wins were flat year-on-year.12 The previous quarter included an $800 million mega deal with SKF, the company's sixth in five quarters.11 Taken together, bookings look steady but not strong enough to point to faster growth soon.

AI crosses the 10% threshold

The figure investors focused on most was AI revenue. Annualised AI revenue reached $3.1 billion, up from $2.6 billion the quarter before, and now accounts for more than 10% of total revenue.13 That is about 19% growth from the previous quarter.15 The trend has held for several quarters: the run rate was $1.8 billion in Q3 FY26 and $2.3 billion in Q4 FY26, and its share of revenue has risen from about 6% to over 10%.11

There is an uncomfortable implication. If AI work is growing nearly 20% a quarter while total constant-currency revenue grows 0.5%, the rest of the business is likely flat or shrinking. Coverage that described AI as offsetting weak IT demand makes the same point.17 Analysts also noted that growth now relies heavily on AI work, while pricing pressure weighs on margins.16 So the AI milestone shows that TCS is shifting toward newer work, but it does not yet show net growth for the company.

How analysts read it

Brokerages agreed broadly on the facts but disagreed on how to read them. Nomura and Motilal Oswal kept Buy ratings, pointing to visibility from bookings and improving international demand. Nirmal Bang called the quarter weak on underlying growth and order momentum.12 Motilal Oswal's quick view was that revenue was in line and margins were below estimates.11 Emkay said operating performance was softer than it had expected.12 Sandeep Shah of Equirus Securities said the results largely matched expectations and highlighted the sequential improvement in international growth.15

Management did not claim demand was improving. According to brokerage notes, it said the demand environment had not changed from the first quarter, and that clients were still scrutinising discretionary programs with no near-term payoff.12 TCS does not give revenue or margin guidance, so the December quarter will be the next real test.2

The operating figures were otherwise sound. Headcount rose by 4,258 to 598,056, the third straight quarter of hiring, and attrition eased to 13.3% from 13.6%.112 Operating cash flow was ₹14,190 crore, or 102.2% of net profit.1 Free cash flow conversion was 91.3%.11

The verdict

TCS beat estimates on profit and slightly on revenue, but missed on margins. A weaker rupee and the absence of last year's one-off charges did much of the work. The real progress is in the mix of the business: international markets are growing again, AI now makes up a tenth of revenue, and a new kind of partnership deal is starting to show up. The risks are just as clear. India fell sharply, North America is still slow, contract value is lower than a year ago, and margins are 120 basis points below last year. The share price rally suggests investors are betting on how the business is changing more than on its current growth. For that bet to pay off, the Porsche and Best Buy deals will need to show up in constant-currency revenue over the next two quarters.