India’s largest IT services provider TCS is confident about getting back to double-digit growth trajectory in FY22 as digital transformation gains momentum, said CEO Rajesh Gopinathan.
“We are very confident that we should be able to get back to our aspirational double-digit growth trajectory,” Gopinathan told media persons announcing the results for quarter ending December 2020.
It could be whether you compare this calendar year (2021) versus last year or financial year, whether FY22 to FY21 or even FY20, he added.
This confidence comes after the company posted its strongest Q3 in the last nine years in the seasonally weak quarter ending December. The IT major posted $5.7 billion in revenues, up 2.1 percent on a year-on-year basis. Its profits grew 3.7 percent year-on-year.
After reporting -1.7 percent and -7.8 percent year-on-year decline in the quarter ending September and June 2020, respectively, the company's revenue grew 2.1 percent in the quarter ending December 31.
Gopinathan said, “We are entering the new year on an optimistic note, our market position is stronger than ever before, and our confidence reinforced by the continued strength in our order book and deal pipeline.”
The strong performance in Q3 and the resulting confidence in achieving double-digit growth is due to couple of reasons.
One. As Gopinathan pointed out, “Growing demand for core transformation services and strong revenue conversion from earlier deals have driven a powerful momentum that helped us overcome seasonal headwinds and post one of our best performances in a December quarter.”
IT spending by clients is seeing an uptick as they accelerate their digital transformation journey. IT firms like TCS are in a sweet spot to tap into this opportunity. The company’s total contract value for the period stood at $6.8 billion more than the $6 billion signed for the same quarter last year.
“Spending on legacy IT will be optimized and re-purposed to fund transformation. We believe spending on digital transformation will be across companies as opposed to being led by digital leaders and digital natives before COVID,” noted a Kotal Institutional Equities report.
This spending will translate to opportunities for IT services firms in the areas of workplace management, customer experience and core transformation.
Two. Increased outsourcing to IT firms as evident from the recent captive acquisition by IT firms as clients look to cut cost.
This includes acquisition of Postbank Systems, the IT unit of Deutsche Bank and Prudential Financial’s IT business unit in Ireland. Similar captive acquisition could be found in its peers such as Infosys and Wipro. According to analysts, this trend is likely to continue in the coming month and could drive growth for the next 2-3 years.