TCS Banks On Record Dealmaking For Growth Amid Macro Hangover

The leader of India's largest IT services firm is drawing succour from record dealmaking in a slowdown year to deliver growth in the new fiscal.

That, after the top line missed the mark in January–March 2024 due to the macroeconomic hangover afflicting its largest market and biggest revenue generator.

“When we started the (January-March) quarter, we were expecting another 50 to 70 to 100 basis points more on the revenue side. We were expecting more growth to come from North America and Europe, which did not happen,” Krithi Krithivasan, chief executive officer at Tata Consultancy Services Ltd., told NDTV Profit's Niraj Shah in a post-earnings interview.

“But we were able to compensate quite a bit by focusing more on the regional markets as much as we could. You can see (in the quarterly results) that our diversification is paying off.”

TCS's North American business, which makes up more than half of its top line, shrank 2.3% year-on-year in Q4 FY24. In comparison, the regional markets of the Asia Pacific and the Middle East grew by 5.2% and 10.7%, respectively. For the full year, North American business shrank by 0.2%, but regional geographies grew by 4.5% and 14.4%, respectively.

Similarly, the financial services domain—which brings in more than a third of the revenue—shrank 3.2% year-on-year in January–March 2024. For the full financial year, its contribution declined by 1%. That negative impact was offset by growth in manufacturing and utilities.

The CEO was circumspect about meaningful growth returning anytime soon.

“At least from our perspective, we do not want to hazard a guess at this time,” Krithivasan said. “There are a lot of variables, as we keep saying.”

“On one hand, there's a lot of new technology coming in. Our clients do want to invest in them and use them for transformation purposes. At the same time, no one understands macroeconomics and where it is going. They (the clients) also want to be ready for a rainy day. So, that is making them pull back some of the committed investments.”

Still, high single-digit growth in a year marred by an industry-wide slowdown is nothing to be scoffed at.

Revenue from Indian IT's bellwether rose 6.8% over the previous fiscal to Rs 2,40,893 crore in the year through March 31, 2024. While maintaining operational profitability at 24.6%. Net profit grew 10.5% to Rs 46,585 crore. At Rs 44,282 crore, the free cash flow was nearly 100% of the bottom line.

Krithivasan is confident of delivering an even better performance in the new fiscal despite a still-hazy macroeconomic picture, riding the coattails of record dealmaking. In FY24, TCS clocked an all-time high total contract value of $42.7 billion, nearly a third of which came in the fiscal fourth quarter—itself a record.

“Our customers have been willing to sign large deals. Yes, there are pullbacks, there are some programmes that get paused or cancelled, but it's fine,” Krithivasan said. “We believe that considering the size of the order book, it should drive growth—maybe not this quarter (Q1 FY25)—but sooner rather than later ... based on the conversations we are having.”

According to Krithivasan, irrespective of the state of the economy, there are enough opportunities for organisations to make money.

“If the customer is focused on conserving cash, we find solutions around cost optimisation. If they are interested in transformation, we will go to them with those opportunities. So, by and large, we have a strong suite of offerings," he said.

“My optimism comes primarily from our TCV. I don't want to use macro as an excuse for growth or lack of it."

Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.