Responding to a question on the gap between reported EBIT and underlying performance, TCS Chief Financial Officer Samir Seksaria said margins excluding exceptional items remained intact despite typical third-quarter seasonality.
“So, excluding one-offs, EBIT, as you rightly called out, is at 25.2%, and they have remained stable despite typical Q3 seasonality, which has been offset through overall productivity and workforce optimisation gains,” Seksaria said.
However, he pointed out that reported EBIT reflected three exceptional headwinds that the company had disclosed in its financials and fact sheet.
“As you rightly called out, if you look at the reported one, there is a difference, and there have been three exceptional headwinds which have been there. The first one is the implementation of the new labour code. Based on the guidance we have received from our consultants, on an overall basis that is about ₹2,100 crore on EBIT. Also, we got an unfavourable opinion or decision on CSC, for which we have taken a provision of about ₹150 million on the P&L. The continuing effort on workforce rationalisation is about ₹250 crore. All this put together is about ₹3,300 crore on EBIT,” he said.
Clarifying the labour code provision, Chief Human Resources Officer Sudeep Kunnumal said the decision was taken based on the current draft rules and expert advice, even though the final guidelines are still under consultation.
“If you look at the new labour code, which came into enactment on November 21, and the draft rules that were published at the end of December, there are certain guidelines that have come through both the enactment and the labour rules. We have discussed this with all our consultants, and to the best of our judgment, to be fully compliant, we have taken this provision. As the rules are still under consultation and once the government formalises them, we will review and adjust accordingly,” Kunnumal said.On employee separation costs, Kunnumal stressed that hiring and capability building continued at scale, even as restructuring efforts progressed through the year.
“This quarter again, we have hired close to 16,000 people. Our investment in hiring continues. Our capability building also continues. I am happy to say that Everest Matrix ranked TCS as the industry leader in future-generation skills, specifically AI data services and machine learning. We are ranked number one. Our people with deep-scale AI skills have grown three times compared to last quarter,” he said.
He added that workforce rationalisation was ongoing but at a much smaller scale. “It is approximately around 800 to 1,000 people in the current quarter,” Kunnumal said, noting that the company does not operate with fixed targets for separations and evaluates redeployment opportunities case by case.
Breaking down the margin drivers for the quarter, Seksaria said productivity and efficiency gains played a key role in offsetting cost pressures.
“Overall margins were stable at 25.2%. We had a benefit of 80 basis points from productivity, pyramid optimisation and operational efficiencies, and a further 20 basis points benefit from currency due to rupee depreciation. That was offset by 50 basis points from the full-quarter impact of wage hikes effective September 1, and another 50 basis points from investments in partnerships and brand initiatives,” he said.
Seksaria added that while some investments could be one-off in nature, overall spending on strategic priorities would continue.
“Overall investments will continue across categories. The mix may change, but we will continue to invest in the strategic priorities we outlined at our analyst day,” he said.
On artificial intelligence, Seksaria said TCS was making sustained investments to transform itself into an AI-enabled IT services company.
“We are investing across the five pillars we discussed at our analyst day. Talent readiness is one big pillar. Internal transformation of TCS continues. We are making our offerings AI-ready, helping customers on their AI journey, and investing in new horizons. We are making about a billion-dollar investment annually through the P&L across these five pillars,” he said.
Despite near-term exceptional costs, management signalled confidence in the company’s operational discipline and long-term strategic investments, particularly in AI and future-ready skills, to support sustained margins and growth.