TCS Bets on Gen AI, HCLTech Raises Guidance: Q3 Results Compared
Overview
Tata Consultancy Services and HCL Technologies reported mixed Q3 results, with TCS facing one-time labour code costs impacting net profit, while HCLTech saw revenue surge 13%. TCS is heavily investing in Generative AI for future growth, even as its share price corrects. HCLTech raised its services guidance, signaling operational strength. Analysts remain divided, with some seeing attractive valuations for TCS and others cautious on HCLTech's limited upside potential. Both companies announced dividends.
Stocks Mentioned
Q3 Performance Diverges
Tata Consultancy Services (TCS) and HCL Technologies (HCLTech) presented their third-quarter results amidst market scrutiny, revealing distinct strategic paths. While both IT giants navigated a one-time impact from India's new Labour Code, TCS is doubling down on Generative AI investments, whereas HCLTech is buoyed by a raised services guidance, positioning them differently for future growth.
TCS reported a 14% year-on-year drop in consolidated net profit to ₹10,657 crore. Excluding exceptional items, however, net profit rose 8.5% YoY to ₹13,438 crore, with revenue climbing 5% YoY to ₹67,087 crore. The exceptional item, an incremental expense of ₹2,128 crore, stemmed from modifications in wage definitions impacting gratuity and compensated absences.
HCLTech, in contrast, posted stronger operational results, with revenue from operations up 13% YoY to ₹33,872 crore, though net profit fell 11% YoY to ₹4,076 crore.
Analyst Outlooks Split
Brokerage firms offer varied perspectives. Motilal Oswal maintains 'Buy' ratings on both, seeing up to 36% upside for TCS and 32% for HCLTech. They note TCS "just beats estimates" amid choppy demand, while HCLTech's raised guidance and improving margin visibility are positives.
Nuvama Institutional Equities is more calibrated. They favour TCS's attractive valuation (20x FY28E P/E) after a significant correction, retaining a 'Buy' rating with a target of ₹3,750, expecting growth recovery. For HCLTech, Nuvama raised its target to ₹1,700 but kept a 'Hold' rating, citing limited upside due to current valuations and minor EPS estimate tweaks.
Strategic Bets and Dividends
TCS's strategic focus on Generative AI, including acquisitions, is building future capabilities and accelerating Gen AI revenues, alongside maintained margin control. HCLTech continues to lead large-cap IT services growth.
Both companies announced dividends: TCS declared a special dividend of ₹46 and an interim dividend of ₹11, totalling ₹57 for Q3 and ₹79 for FY26 so far, with a record date of January 17. HCLTech declared an interim dividend of ₹12 per share for FY26, with a record date of January 16, 2026.
