TCS' recently appointed CEO K Krithivasan said achieving double-digit growth this year appears to be challenging as clients exercise caution in an uncertain demand environment. He further stated that the company needs a quarter to two before they can confidently state that difficult times are behind them.
Krithivasan spoke to Moneycontrol at the software firm's headquarters in Mumbai, a day after the company reported its earnings for the first quarter. This also marked his first earnings as CEO.
TCS reported flat revenue in the June quarter impacted by pressure in key segments such as financial services, hi-tech and telecom. Its EBIT margins declined by 130 basis points to 23.4 percent as the company absorbed the impact of a wage hike. Revenue in US Dollar terms stood at $7.22 billion, which was in-line with the $7.23 billion figure expected from a CNBC-TV18 poll. On a sequential basis, growth in US Dollar terms stood at 0.4 percent on a sequential basis, compared to expectations of 0.5 percent.
While TCS' revenue growth for the first quarter, at 0.4%, was the slowest in a decade excluding the Covid period, the subdued earnings were on expected lines.
"Double digit growth could become difficult. It’s pure maths. If you start off at zero, you’ll have to do something extraordinary in the back end. It doesn’t make it very easy to achieve double digit growth…but it’s aspirational. We will continue to translate every opportunity into growth. We will galvanise our team towards it," Krithivasan said during the interview.
He further said that he has been meeting clients in the Europe, UK and the US in the last 6-8 weeks. "We are happy with the strength of the relationship they share with TCS. There will be certain areas where they will pause spending and certain areas where they will spend. Programs with well-defined return on investment will continue. Clients also look at cost optimization projects. Customers would want to consolidate more with us because we give better value."
He expects growth momentum to return once uncertainty ends in major markets such as the US and added that they will have better visibility in the second half of the year in a quarter or two. He however said that no clients are asking for discounts at this point and also said the company continues to aspire for a margin band of 26-28%, though it is currently in the 23% range.
"We are very confident that a 26-28 percent margin is still achievable. There are always reasons why we are not doing it. We are well poised to be in the 26-28 range. There are one off challenges that come once in a while", he said.
TCS' order book for the quarter stood at $10.2 billion, which is the highest in five quarters. Krithivasan said he confident about having a strong order book going ahead.
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