India’s largest IT services company Tata Consultancy Services (TCS) on January 11 reported that its deal total contract value (TCV) for the third quarter ended December 31, came in at $8.1 billion, missing the company’s quarterly deal win guidance of $9-10 billion.
This was largely driven by the company not winning any mega deals this quarter, apart from a decline in key verticals like banking, financial services and insurance (BFSI) and the overall market sentiment not changing despite cuts in the Fed’s interest rate cuts. Also, Q3 is a seasonally weak quarter for the IT sector.
TCV declined from $11.2 billion reported in Q2. On a year on year basis, order book was up by 3.85 percent, from $7.8 billion.
K Krithivasan, CEO and MD, TCS said, "The optimism around interest rates has not resulted in a reduction of the uncertainty that we see in decision making. The sentiments have remained the same so I don’t think we are not ready to say that it will recover by Q4."
Though he added that $8.1 billion was a strong pipeline for the company in a seasonally weak quarter. Moreover, this was achieved without winning any mega deal this quarter.
Also read: TCS dividend bonanza: Rs 18 special, Rs 9 interim dividend announced with Q3 results
Growth in Q3 was led by the energy, resources and utilities vertical, which grew 11.8 percent YoY in constant currency (CC) terms, manufacturing which grew 7 percent, and life sciences and healthcare which grew 3.1 percent.
BFSI, which accounts for nearly 35-40 percent of the company’s revenue, declined by 3 percent YoY in CC terms. Other verticals that de-grew include the Consumer Business Group (CBG) with a -0.3 percent YoY CC, Communications & Media slowed down by -4.9 percent and Technology & Services declined -5.0 percent.
Geography-wise, it company recorded growth from emerging markets. India led the pack with a 23.4 percent YoY growth in CC terms, Middle East & Africa grew 16 percent, Latin America grew 13.2 percent and Asia Pacific grew 3.9 percent, respectively.
The IT major's core markets saw a slowdown. North America’s growth declined by 3 percent YoY, while the United Kingdom recorded growth with and 8.1 percent YoY jump along with continental Europe with a growth of 0.5 percent.
Also read: TCS sees headcount decline by 5,680 in Q3FY24
BFSI slows down, India gains
Explaining the decline in BFSI business, Krithivasan said, "The BFSI de-growth has two aspects. There were large projects in North America which we successfully completed, but then another replacement programme did not start. And there is an impact of furloughs in some parts of Europe, which is causing this slowdown."
He, however, added that TCS has been winning good deals in BFSI and the company has a very good pipeline. "We are confident that the growth will return in the medium to long-term," he said.
The sudden growth reflected in India market was largely driven by third party license deals coming in and the $1.8 billion BSNL project going on floors, which has started generating revenue.
"India growth is driven by positive seasonality and then we have the BSNL deal, which we started to deliver on. These two have been the growth drivers. Saying that we will continue to grow at over 23 percent in India will be a stretch, but we will continue to see growth," Krithivasan said.
Regarding the company's generative AI pipeline, the management said that the customers have now started getting comfortable with the technology and they expect some of the proof of concepts (PoCs) to move into production. As of now, some PoCs have moved into production, but those are "small projects."
TCS had said there were four such PoCs which are now in production.
In Q2 earnings conference, the company had said that they have 250 Gen AI opportunities in the pipeline.
TCS reported its earnings for the third quarter ended December 31. Net profit was up 2 percent YoY at Rs 11,058 crore. On a sequential basis, it was down by 2.5 percent.
Consolidated revenue was up 4 percent YoY to Rs 60,583 crore. Ebit margins or operating margins improved 50 bps sequentially coming in at 25 percent.
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