Bengaluru: TCS’s numbers in the March quarter were weaker than expected due to subdued sentiment and spending in its mainstay market and vertical – North America and banking and financial services — putting its resilience to test in a challenging banking environment.
TCS’s revenue grew a modest 0.6% in constant currency in the quarter compared to the preceding one, missing the bus on the sequential revenue and margin performances. Its revenue grew 10.7% year-on-year in constant currency to $7.1 billion. Operating margins were flat at 24.5% in the March quarter.
TCS CEO Rajesh Gopinathan said the volatility increased from February. “This quarter has come in weaker than anticipated and primarily coming out of North America. It had slowed last quarter. Our expectation was it’s a cautionary stance from clients and it will bounce back in the first few months of the new year. That has not happened partially because of lingering concerns and exacerbated by financial volatility in the banking system there,” he said.
Gopinathan said it’s difficult for TCS to determine how long the challenges will last, indicating a wait-and-watch mode as to how the near-to-medium term will turn out. “From an operational perspective, we have brought down lateral hires and the overall capacity addition, leveraging investments we have made last year and systematically using return to normalcy to travel to reposition our employee base in North America.” Gopinathan said it’s his last and 25th earnings presentations as CEO-designate K Krithivasan takes charge on June 1 as the new CEO and MD. For the full year, TCS’s revenue grew 13.7% to $27.9 billion, and growth was led by North America that grew 15.3% and UK at 15%. Its operating margins dropped 120 basis points to 24.1% in the 2022-23 financial year.
Krithivasan said the demand environment is strong and that’s reflected in the order book. TCS snagged a total contract value (TCV) of $34.1 billion for the 2022-23 financial year and the March quarter alone saw orders worth $10 billion. “We closed the year on a strong note. In the March quarter, North America TCV was $5 billion, BFSI at $3 billion and retail TCV at $1.3 billion that includes new account wins. We are enthused by the demand. Despite short-term uncertainties, our theory and thesis are correct, and demand will sustain.”
“Due to interest rates and inflation, there are issues in insurance, capital markets and mortgage businesses. What changed this quarter is the sentiment. There was a greater rush to conserve cash in any eventuality. It’s sentiment at play rather than anything structural. In many international banks, deposits are higher, they would be better placed going forward,” he said.
Gopinathan, however, said, the aggravated volatility was fairly recent, and sentiment was negative. “However, there are no large-scale project cancellations and clients are not rethinking transformation agendas. Discretionary projects are put on hold. The US is the most risk-taking market and they move fast on the upside and on the downside,” he added.
TCS COO N Ganpathy Subramaniam said many client conversations begin with generative AI. “For once, it’s very clear that innovation is surpassing productivity and that kind of theme is spanning across deal wins. The possibilities are just new. We are looking at how to give our developers capability to use generative AI using our repository of codes and design patterns used over decades by the company,” he said. Subramaniam also said that TCS has a lot of data on delivery metrics they have collected over the years on how they have been doing on various technologies. “Now we are looking to raise the bar on how we can increase the quality of delivery,” he said.
TCS’s revenue grew a modest 0.6% in constant currency in the quarter compared to the preceding one, missing the bus on the sequential revenue and margin performances. Its revenue grew 10.7% year-on-year in constant currency to $7.1 billion. Operating margins were flat at 24.5% in the March quarter.
TCS CEO Rajesh Gopinathan said the volatility increased from February. “This quarter has come in weaker than anticipated and primarily coming out of North America. It had slowed last quarter. Our expectation was it’s a cautionary stance from clients and it will bounce back in the first few months of the new year. That has not happened partially because of lingering concerns and exacerbated by financial volatility in the banking system there,” he said.
Gopinathan said it’s difficult for TCS to determine how long the challenges will last, indicating a wait-and-watch mode as to how the near-to-medium term will turn out. “From an operational perspective, we have brought down lateral hires and the overall capacity addition, leveraging investments we have made last year and systematically using return to normalcy to travel to reposition our employee base in North America.” Gopinathan said it’s his last and 25th earnings presentations as CEO-designate K Krithivasan takes charge on June 1 as the new CEO and MD. For the full year, TCS’s revenue grew 13.7% to $27.9 billion, and growth was led by North America that grew 15.3% and UK at 15%. Its operating margins dropped 120 basis points to 24.1% in the 2022-23 financial year.
Krithivasan said the demand environment is strong and that’s reflected in the order book. TCS snagged a total contract value (TCV) of $34.1 billion for the 2022-23 financial year and the March quarter alone saw orders worth $10 billion. “We closed the year on a strong note. In the March quarter, North America TCV was $5 billion, BFSI at $3 billion and retail TCV at $1.3 billion that includes new account wins. We are enthused by the demand. Despite short-term uncertainties, our theory and thesis are correct, and demand will sustain.”
“Due to interest rates and inflation, there are issues in insurance, capital markets and mortgage businesses. What changed this quarter is the sentiment. There was a greater rush to conserve cash in any eventuality. It’s sentiment at play rather than anything structural. In many international banks, deposits are higher, they would be better placed going forward,” he said.
Gopinathan, however, said, the aggravated volatility was fairly recent, and sentiment was negative. “However, there are no large-scale project cancellations and clients are not rethinking transformation agendas. Discretionary projects are put on hold. The US is the most risk-taking market and they move fast on the upside and on the downside,” he added.
TCS COO N Ganpathy Subramaniam said many client conversations begin with generative AI. “For once, it’s very clear that innovation is surpassing productivity and that kind of theme is spanning across deal wins. The possibilities are just new. We are looking at how to give our developers capability to use generative AI using our repository of codes and design patterns used over decades by the company,” he said. Subramaniam also said that TCS has a lot of data on delivery metrics they have collected over the years on how they have been doing on various technologies. “Now we are looking to raise the bar on how we can increase the quality of delivery,” he said.