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'TCS Is Not A One-Trick Pony'

July 26, 2024 13:18 IST

'We are sure FY25 is going to be better...But to call out that all problems are behind us is a bit early.'
'The underlying business sentiment has not changed significantly.'

IMAGE: Tata Consultancy Services CEO K Krithivasan at a press conference in Mumbai, January 11, 2024, announcing the company's quarterly results. Photograph: Francis Mascarenhas/Reuters

For Tata Consultancy Services (TCS), India's largest IT services company, the first quarter of FY25 numbers announced recently indicate a trend of return to growth.

K Krithivasan, managing director and CEO of TCS, is sure the coming quarter will see growth across verticals and geographies.

In an interview with Shivani Shinde/Business Standard at TCS House in Mumbai, Krithivasan talks about why he is hesitant to call out growth, emerging markets driving growth, GenAI project...

 

While you said FY25 would be better than FY24, you also remarked that it is still too early to say whether the growth momentum is sustainable. Why this divergence?

This is not a mismatch. We are sure FY25 is going to be better because of the exit rates that we have seen as we ended FY24 and what we saw in Q1.

This gives us confidence that FY25 will be a better year.

But to call out that all problems are behind us is a bit early.

The underlying business sentiment has not changed significantly.

Total contract value (TCV) numbers are soft too...

Historically, Q1 is a strong quarter not because we announce a higher TCV but because of the TCVs that we have built in the earlier quarters.

Also, there are other factors, such as budgetary cycles have started, etc.

In that sense, we have built large TCVs. We did a review of all the current programmes that we are doing and the TCVs that we booked over the past four to five quarters, and also looked at if we are realising the revenue.

We are quite comfortable with the way those programmes are realising revenue.

Even though there is uncertainty, there is reason to believe that FY25 will be better than FY24.

What is making customers/clients hold back on the purse strings? Is it just the macro or the new technology wave as well?

If you take the US, what is keeping everyone on a wait-and-watch mode are the interest rates and the elections.

Second, at the consumer level, confidence is still not high, and we can see it in our retail business.

These are small trends that we keep seeing, like sometimes the essentials are doing very well or at some places the credit card loans are increasing.

Such things keep the situation uncertain. The overall sense is that clients want to conserve cash so that they can use it when the time is right.

...then where does the spend on GenAI fit into all this business mood?

We have mentioned earlier as well that many of these programmes tend to be smaller in nature. They do not move the needle in terms of increasing the budget.

TCS does have a pipeline of $1.5 billion worth in GenAI. When do you see this amount becoming the actual deal wins for the company, or will it take time?

GenAI projects are all short-tenured projects. They are for a period of two to three quarters. We have seen the start of some long-term deals.

For instance, for one of our clients, we are creating an AI office. IT creates an overall infrastructure, and methodology for implementing AI solutions.

This office will look at multiple use cases and the rollout of these use cases.

Some of the clients have started to establish their own AI office, which tends to be a long-term opportunity.

My view is that these technologies will take another year or two to mature.

Also, over time, we believe that there will be pure play AI projects, but a significant amount of this will be embedded in other projects.

Emerging markets have done very well. Especially India, you also said that the India story is much more than the BSNL deal.

In India, we have both the government and non-government segments.

We have participated with the government on large public services projects at scale.

We are part of the Ayushman Bharat project, and we are rolling out the next version of the Passport Seva programme.

Other than the government, we work with almost all the large public-sector banks and they continuously revamp their technology landscape.

In India, we have been exposed to the BFSI sector more, but the focus now is to go beyond this segment.

That is where more investment is happening. Emerging market is not just an India story, we have won deals in the ASEAN countries and this is not just Singapore and Hong Kong.

We have done some significant work in Malaysia and Thailand and are expanding very well.

Do you think BSNL is single-handedly driving growth for TCS?

To say that TCS is becoming a one-trick pony is not a statement generous for the work that the teams are doing.

Annually, the teams generate $9 billion in revenue... The India story definitely has BSNL as a significant component.

So BSNL is a 24-month programme, we are broadly in line with the timelines.

We will be delivering the programme in 24 months. 10,000 sites are already carrying the commercial workloads.

We will participate in more and more programnes that will come up in India.

Growing in emerging markets will mean lower margins. Rather, that is one of the reasons why many large IT players have stayed away from the India market. How will TCS balance the margin growth?

Over a period of time, we have seen that we have managed to improve the margins and they are converging.

Also, a lot depends on what services and work you are going to offer matters.

There is no labour arbitrage in the India-centric deals, but if you can give more products, and services, and more outcome-based programmes then it works.

I also believe that the nature and complexity of deals are more interesting in the emerging market as they do not have any technology debt.

Yes, there is a margin back, but we have been able to shrink it.

When the growth comes, we need to probably drive the margins elsewhere.

A lot of buzz around global capability centres (GCCs). Does it impact TCS?

In the long run, I think we have an important role to play because we have scale and also offer options in technology among other things.

We have said if the GCCs have come here for a specific capability, then it makes sense, but if they are coming for cost arbitrage then they need to have scale.

So far, we have been able to handle this quite well.

We work with many of the large organisations and many of our clients have their GCCs in India.

If you have a scale of 10,000 to 20,000, it makes sense.

Sustaining these centres needs interest from the overseas operations to ensure that they are successful, that the GCC has the right mechanism of controlling costs, which in smaller GCCs becomes a problem.

Feature Presentation: Aslam Hunani/Rediff.com

Shivani Shinde
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