TCS vs HCLTech Q3 FY26

TC

TCS

Q3 FY26 · Information Technology

TCS delivered a solid Q3 FY26 with revenue of INR 67,087 crore, up 4.9% YoY and 0.8% CC QoQ, driven by broad-based growth across verticals like BFSI, CBG, and ERU. Operating margin held steady at 25.2% despite wage hike headwinds, supported by productivity gains and currency benefits. AI services revenue surged to $1.8 billion annualized, growing 17.3% QoQ, reflecting accelerating enterprise AI adoption. Deal TCV was robust at $9.3 billion, including a mega deal in North America BFSI. Management expressed confidence in a good CY26, citing improving demand and strong pipeline. Key risk: sustained weakness in North America and UK markets could temper growth if discretionary spending remains subdued.

Guidance read

International revenue growth aspiration for FY26: Management aims to deliver higher international revenue growth in FY26 compared to FY25, with optimism for Q4. Operating margin target of 26%-28% band: CFO stated efforts to inch closer to the traditional 26%-28% margin band, with 26% as near-term goal. AI services revenue growth trajectory: AI services revenue expected to continue growing at a strong rate, with $1.8B annualized in Q3. Data center revenue timeline: Revenue from AI data center build-out expected to start ~18 months after anchor customer announcement.

Risk read

Key risks include North America and UK market softness — North America revenue was flattish and UK faced ongoing challenges, which could temper growth if discretionary spending remains subdued.; Restructuring costs and headcount reductions — TCS released ~1,800 employees in Q3 and expects restructuring to continue into Q4, impacting margins and morale.; Legal and one-time expenses — Other expenses rose sharply due to legal fees, M&A costs, and CSR; CFO indicated 10-20 bps one-time impact, but ongoing legal costs may persist.; BSNL revenue uncertainty — Revenue from BSNL remains flat until formal PO is received; no clear timeline provided, creating uncertainty..

Promise ledger

Of 2 tracked promises, management 0 met, 0 close, 2 missed.

HCLTech delivered a standout Q3 FY26 with revenue of INR 33,872 crore, up 13.3% YoY, crossing a $15 billion annualized revenue milestone. Services revenue grew 5% YoY in constant currency, led by Engineering & R&D Services (10.8% YoY) and HCLSoftware (28.1% QoQ). EBIT margin at 18.6% (excl. labor code impact) improved 111 bps QoQ. Net income was INR 4,795 crore. Management raised full-year services guidance to 4.7%-5.25% CC and overall guidance to 4%-4.5% CC. Key growth drivers include advanced AI revenue of $148 million (up 20% QoQ), strong bookings of $3 billion, and a mega $475 million AI-led deal. Risks include persistent softness in discretionary spending and potential impact from U.S. tariff policies, though management remains confident in capturing emerging AI-related spend.

Guidance read

FY26 Services Revenue Growth Guidance Raised to 4.7%-5.25% CC: Full-year services constant currency growth guidance raised to 4.7%-5.25% from previous range, reflecting strong Q3 performance and bookings. FY26 Overall Revenue Growth Guidance Raised to 4%-4.5% CC: Company-level constant currency growth guidance raised to 4%-4.5% for FY26. FY26 EBIT Margin Guidance Maintained at 17%-18%: Full-year EBIT margin guidance remains at 17%-18%, inclusive of restructuring costs but excluding one-time labor code impact. Ongoing Labor Code Cost Impact Minimal at 10-20 bps: Management expects minimal ongoing costs from new labor code, estimated at 10-20 basis points impact on margins.

Risk read

Key risks include Persistent Softness in Discretionary Spending — Traditional discretionary spending remains soft, and management is not expecting a rebound to pre-COVID levels, focusing instead on emerging AI-related spend.; U.S. Tariff and Geopolitical Uncertainty — Potential impact from U.S. tariff threats (e.g., 500% tariff) and geopolitical tensions could affect the services sector. Management declined to comment, indicating uncertainty.; Life Sciences & Healthcare Vertical Weakness — Life Sciences and healthcare vertical continues to show weakness due to U.S. healthcare sector pressure, with management expecting stabilization in a couple of quarters.; GCC Expansion Impacting Outsourcing — Rise of Global Capability Centers (GCCs) in India may structurally change outsourcing opportunities, though management sees it as a net opportunity..

Promise ledger

Of 4 tracked promises, management 0 met, 0 close, 4 missed.