India’s largest IT services provider Tata Consultancy Services (TCS) on January 8 reported its strongest results in the last nine years for the quarter ending December 2020, a seasonally weak quarter.
TCS CEO Rajesh Gopinathan told media persons during the results announcement that the company is confident about achieving a double-digit growth trajectory in FY22 on the back of digital transformation.
In an interaction with Moneycontrol, V Ramakrishnan, CFO, talks about what drove growth for the seasonally weak December quarter, demand environment, hiring, and work from home.
Edited Excerpts:
TCS has reported the strongest Q3 results in nine years. Could you give us some insights on what made it possible?
Growth has been broad-based. The banking and financial services and insurance (BFSI) is such a large part of our portfolio and its growing strongly has been a very important factor. Other sectors such as healthcare have been on a complete roll, which is good. Parts of retail, like essentials, have done very well.
Broad-based growth across the geographies has contributed to it and that has come due to multiple factors. Some of the customers who were “fence-sitting” on some decisions like cloud adoption have accelerated that.
The third is our own state of readiness. You can have market opportunities. But you should be in a position to grab those opportunities and also execute well. From that perspective, it is more internal driven.
Our continuous engagement with customers through all these cycles and our presence in all the important markets and geographies; sales capabilities and engagement with the customers are also important. Customers will come only when you are in a position to deliver what you are promising. I think there is a lot of that and that is what is coming together.
Does that mean that the decision-making cycle is no longer an issue?
From the total contract value signed this quarter, it has got a good mix of large, medium, and small-size deals. Our pipeline is strong and also broad-based and across multiple geographies as well as industries and service lines. It has also got large deals that are transformative in nature.
I would say that with the situation improving on the ground, the decision cycle will improve as well. It is not an overriding concern. When we shifted to virtual mode, concerns were how we are able to do that.
But the adaptation has been very strong in terms of engaging with the customers through this completely virtual mode. So much so that contract negotiations, signing, onboarding and transitions and all of it has been happening virtually.
Of course with the second wave and lockdown in some countries, it is difficult to predict. It is going to be a wait and watch.
IT spends of clients are not increasing. So where is the tech spending coming from?
Overall size (of IT spending) might be the same but what happens is you can get more for less. What happens is you invest and you get the benefits out of that investment, which is again ploughed back into further spend. This is because of the power of some of these technologies.
Take our own case, for the last 15 years, our CAGR has been 16 percent or so in revenue. I don’t see any study that showed technology spend increasing by that number in any country or any time period.
It has always been in the low single-digit.
Our growth has been possible because of the market share gain. Within our customer organisation, mining to get more opportunities. Our ability to go and identify (those opportunities) and make those meaningful proposals and offering and that is where the differentiation comes. I think the results vindicate some of those.
COVID-19 has brought in a lot of changes including WFH. Could you tell us what are those changes that could be permanent?
I think a lot more flexibility will come in for both customers and for us in terms of engagement models.
This has also reinforced the trust quotient with customers. The customers have been able to see how we are able to stand up to the occasion. For some customers, whose industries are going through tough times, we have taken a much longer-term view.
So I think the trust quotient is an important thing. When they (clients) look for partners that (trust) becomes important and strengthens the relationships that we have, makes it even more enduring.
Of course, I think the flexibility of the Secure Borderless Workspaces (SBWS) model, will itself be a game-changer in terms of how you execute and staff project. Over a period of time, we hope that we will have some elements of gig economy that will come into play. That will take some time, but it is possible. So benefits are high and this will create its own new dynamics and evolve.
A lot more emphasis will come on the security aspect. That is already happening and that will be a big factor. One is from prevention and detection plus the assurance right. The ability to say that your systems are robust and fail-proof as well as secure, I think, will give confidence to customers.
It was always there, it would become even more pronounced.
How do you see the travel aspect of the IT business changing in the post-COVID-19 world?
We will always have a hybrid model. You will still have people moving cross border. That will continue. But proportions may change. That is quite possible because of the opportunities available.
Earlier, for instance, if a particular individual has all the relevant skills and experiences for a particular project for a particular engagement where that person has to relocate. Sometimes that person cannot relocate, he/she is not finally considered for that project. That will go away.
Location constraints, mobility, or where there is immigration involved, some of those things will definitely come down. Because there is an opportunity to do it.
How is your hiring outlook like for FY22?
Trainees from the campuses, I think we will do same type of numbers as we did in the current year (FY21). We had about roughly 40,000 and next year also we will have some similar number.
Experienced professionals are completely dependent on requirements and based on demand environment. But we are definitely optimistic about the momentum.
TCS acquired two IT units of customers, Deutsche Bank and Prudential Financial, last year. Do you see increased momentum in this space in the coming months?
These (acquisitions) are not the first of this kind. It has happened in the past. These will continue to be there. But it is very difficult to say if the momentum will increase if we will have more such deals.
It is completely country and context specific. But this is also something which we also look for.
It has a number of advantages. These are with existing customers we have a strong deep relationship with. It also helps us to expand our own ability in certain geographies, countries. Within the countries, there are still many sectors and sets of customers where we do not have a presence.
So this is a model we will continue to look at, and depending on the situation and opportunities, we will exploit.
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