Revival, Not Recovery: TCS Balances Between Improving IT Spends And Drying BSNL Revenue

Even as global customers remained cautious on big information technology projects in the December quarter, Tata Consultancy Services Ltd. is banking on early conversations with the same clients while hoping for an increase in discretionary spends, according to Chief Executive Officer K Krithivasan.

"In some early conversations with our clients, we heard that there could be a positive upward bias in their budgets for the next year," he told NDTV Profit in an interview.

The information technology and services giant reported a muted quarterly performance with most metrics in line with a consensus of estimates from analysts' polled by Bloomberg.

Krithivasan expects 2025 to be better than last year as TCS sees early signs of "revival, not recovery" in discretionary spending in some business verticals.

As customers' IT spends pick up, the CEO said deal cycles were shortening too, indicating a better decision-making environment. In a call with analysts, he attributed this shortening of deal cycles to generative artificial intelligence, specifically in terms of pricing.

"We did a sample on a set of deals and saw that there is a shortening of deal cycles by a good couple of weeks," he told NDTV Profit. "We need to see what happens next, but compared to the second quarter, the December quarter saw improved decision-making cycles."

With the reduction in the interest rates, easing of inflation, and reduced uncertainty with the new US administration taking over, TCS expects the discretionary demand to strengthen in the future.

While Krithivasan remains cautious about the company's healthcare and life sciences segment revenue in the US, he indicated that easing inflation in the country, coupled with falling unemployment, contributed to a cautious optimism for the banking, financial services, and insurance services vertical.

For the healthcare segment, he expects clarity on new regulations once the new Trump administration takes office on Jan. 20.

"I am not looking at Jan. 20 as a headwind. Once Donald Trump is sworn in, more clarity will emerge and uncertainty will come down, which could be a positive for us," he said. "There is a certain expectation in industries like retail and banking already, which indicates a positive move towards discretionary programmes."

Krithivasan told NDTV Profit that though TCS did not report any mega deals in the December quarter, the company is working on certain mega deals, but there are not going to be a lot of them.

The TCS CEO's hinting of a strong total-contract-value pipeline builds up on the back of the company's drying revenue stream from their Bharat Sanchar Nigam Ltd. order.

A TCS-led consortium had won a Rs 15,000-crore order from BSNL for deploying 4G across India in 2023. This mega deal was a major contributor in the IT bellwether's sustained growth in the domestic market over the last year and half.

However, TCS has now said that almost 70% of the BSNL order had been executed. Krithivasan explained that he expects revenue from the order to taper off by the second quarter of fiscal 2026, but some orders from India or overseas are likely to replace the steady BSNL revenue.

Elaborating on the mega deals TCS is currently looking at, Krithivasan said: "Some of the mega deals focus on transforming (the) operating model for clients, while some are for helping clients optimise their revenue streams."

He added that such deals are lumpy in nature and have a longer deal cycle.