TCS’ Rajesh Gopinathan says quarter weaker than expected; Q4FY23 TCV at $10 billion

Tata Consultancy Services (TCS) reported a strong order book of $10 billion for the fourth quarter of fiscal year 2023. Despite a tough business environment due to macroeconomic headwinds, the IT services giant saw its all-time high number of large deals signed in a quarter.

However, the total contract value (TCV) for Q4 was down by 11.5 percent on a year-on-year (YoY) basis as compared to $11.3 billion reported in Q4FY22. Full-year TCV for FY23 stood at $34.1 billion, down from $34.6 billion in FY22.

Some of the deal wins in Q4 include UK insurer Phoenix Group’s $723 million deal, Telefonica Germany, KeySight, Bitcoin Suisse AG, Bombardier, CTBC Bank, Taiwan, etc to name a few.

According to analysts, TCS is one of the key beneficiaries as clients focus on cost-takeout deals and look at vendor consolidation.

Rajesh Gopinathan, Chief Executive Officer and Managing Director, TCS said: “It is very satisfying to look back at our strong growth in FY2023, on top of the mid-teen growth in the prior year. The strength of our order book demonstrates the resilience of demand for our services and gives us visibility for growth in the medium term.”

“Demand scenario is varying by market. At the start of the year, we expected North America to recover well, but that has not happened. Other markets have grown as expected. The UK has been strong, increasing positive growth in Europe,” Gopinath told the media.

He said that this quarter has come in weaker than expected, primarily due to North America. The company saw volatility in the banking system and said it was difficult to call out how long this will last.

“Near term needs to be watched. Demand for tech-led transformation and optimisation continues to be strong but requires a very nuanced approach by market and vertical,” Gopinath said.

The January-March quarter was marked by the global banking crisis with the collapse of several US-based regional banks, including the Silicon Valley Bank (SVB), Signature Bank and Swiss bank Credit Suisse – adding to the IT sector’s woes as it is already struggling with macro-economic challenges. As of Q3, TCS got around 38.5 percent of its revenue from the Banking, Financial Services and Insurance (BFSI) vertical, the highest BFSI exposure among Tier-I Indian IT firms.

Incoming CEO K Krithivasan, who heads the company’s BFSI vertical, said that sentiments were down in the sector as people rushed to save costs.

“People rushed to save costs. It's more sentiments at play than anything structural. Large bank clients are benefitting from increasing deposits in North America. Some issues in US, other markets are doing quite well for us,” Krithivasan said.

In Q4, the company had 60 clients in the $100 Mn+ band, 133 in the $50 Mn+ band, 291 in the $20 Mn+ band, 461 in the $10 Mn+ band and 1241 in the $1 Mn+ band.

On a year-on-year basis in constant currency terms, growth in Q4 was led by Retail and CPG (13 percent) and Life Sciences and Healthcare (12.3 percent), followed by Technology & Services grew 9.2 percent, BFSI grew 9.1 percent, Manufacturing grew 9.1 percent and Communications & Media grew 5.3 percent.

The TCV for Q4 stood at $10 billion, higher than its guidance of $7-9 billion. TCV was up 28.1 percent from $7.8 billion in Q3. On a YoY basis, the number was lower than $11.3 billion TCV clocked in Q4FY22, its highest-ever quarterly order book.

“We expect strong deal-wins of $10 bn+ for the quarter, assuming normal renewal component. We do not include TCV from (the) mega deal with BSNL that is likely to be signed with TCS. TCS' commentary on growth outlook will be keenly followed. TCS is expected to be a beneficiary of higher focus of enterprises on cost take-outs and core modernisation,” analysts at Kotak Institutional Equities said in their note prior to the earnings.

For the entire fiscal, TCS has reported a revenue of Rs 2.25 lakh crore, which is 17.6 percent higher than Rs 1.91 lakh crore recorded in FY22. The net profit in FY23 came in at Rs 42,303 crore, which is also higher as compared to Rs 38,449 crore in the previous year.