Q3 IT Results: Why HCLTech Looks Ahead of TCS

The third quarter is usually a soft one for IT companies because of holidays in key overseas markets. Yet, both Tata Consultancy Services and HCL Technologies surprised positively on revenue and deal wins. But beneath the headline beats, are Tata Consultancy Services and HCL Technologies really moving in the same direction?

Are Deal Wins Masking A Slowdown At TCS?

On the surface, TCS delivered a decent quarter. The company reported revenue of $7.51 billion, beating Bloomberg estimates, with net profit rising 3.1% year on year to $1.5 billion. Deal momentum also remained strong, with a total contract value of $9.3 billion, marking the fifth consecutive quarter with bookings above $9 billion.

However, a closer look raises concerns. Trailing twelve-month dollar revenue declined 0.7% year on year in the December quarter. More tellingly, incremental TTM revenue turned negative for the first time in 20 quarters, slipping by $216 million. This suggests that while deals are being signed, conversions into actual revenue are slowing due to delayed client decision-making.

Management acknowledged the cautious environment. K. Krithivasan said the company is focusing on short-cycle projects where returns are clearer, particularly in AI-led engagements. TCS reported $1.8 billion in annualised AI services revenue, up 17.3% sequentially, and has begun investing in data centre-related offerings such as HyperVault to revive growth.

That said, costs weighed heavily on profitability. The impact of new labour codes, restructuring expenses, and a legal provision linked to a dispute with Computer Sciences Corporation pushed exceptional costs sharply higher. Operating margins stayed flat at 25.2%, while headcount fell by over 11,000 employees during the quarter, continuing a multi-year trend of workforce reduction.

Why Does HCLTech Look Better Placed For A Rerating?

HCLTech’s numbers told a different story. Revenue rose 7.4% year on year to $3.79 billion, comfortably beating estimates, while deal bookings hit a nine-quarter high of $3,005 million. Unlike TCS, HCLTech has managed to sustain over 4% TTM revenue growth for nine consecutive quarters.

Although net profit declined marginally year on year to $537 million, it rose more than 10% sequentially. Operating margins improved by 110 basis points to 18.6%, supported by a higher contribution from software products and licences, which carry lower delivery costs.

Importantly, HCLTech nudged up its FY26 services revenue growth guidance to 4.75–5.25% in constant currency. Management highlighted rising investments in newer technology areas such as data centres, semiconductors, generative AI, robotics, and automotive platforms, even as traditional transformation projects remain slow.

C. Vijayakumar pointed to persistent global uncertainty but maintained that structural demand for technology-led transformation remains intact. Reflecting this confidence, HCLTech added 10,000 freshers in the nine months to December 2025, significantly higher than last year, signalling preparedness for future demand rather than near-term caution.

Do Margins And AI Bets Decide The FY26 Finish?

Both companies are grappling with rising costs from new labour codes, which together added nearly $350 million to expenses in the December quarter. Yet, their paths into the final quarter of FY26 look very different.

TCS needs its fastest quarterly growth in five years to merely match last year’s revenue, making execution risks higher. HCLTech, on the other hand, requires a far more achievable Q4 performance to meet or exceed its FY25 revenue.

AI remains a common bright spot. HCLTech has disclosed $246 million in cumulative AI revenue, while TCS has begun quantifying its AI business more clearly. Even so, visibility differs, with HCLTech appearing better positioned for near-term growth and potential rerating, while TCS faces pressure to convert its large deal pipeline into tangible revenue.

As the IT earnings season unfolds, the key question for investors is whether scale alone can offset slowing momentum at TCS or whether HCLTech’s sharper focus on emerging technologies will deliver more consistent returns in FY26.

Sources

Mint
Business Standard
Economic Times