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TCS top management upbeat on deal environment and EV transition opportunities

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TCS reported a net profit of Rs 9,624 crore over revenue of Rs 46,867 crore for the quarter ended September 30, 2021, missing Street estimates.

TCS top management upbeat on deal environment and EV transition opportunities
Tata Consultancy Services (TCS), the country's largest IT services provider, kicked off the corporate earnings season on Friday, October 8. TCS reported a net profit of Rs 9,624 crore over revenue of Rs 46,867 crore for the quarter ended September 30, 2021, missing Street estimates. TCS said its revenue in constant currency terms grew 15.5 per cent on a year-on-year basis.
Below is the verbatim transcript of Rajesh Gopinathan, MD & CEO and N Ganapathy Subramaniam, ED & COO of TCS:
Latha: Where are the analysts going wrong when it comes to reading the TCS performance?
Gopinathan: I think our results have been along the lines of what we have been speaking about for the last year; about the strong demand momentum that we are seeing and the nature of the demand coming from both digital as well as cloud transformation and we see that reflected in the segmental data information that we have shared. So, if you look at it, that broad-based nature of growth is a reflection of the structural uptrend that was spoken about for some time now.
On your question, most analysts fully understand this trend and have pretty much been commenting about it in various forms and I think these results, bear out the kind of demand trends that they have spoken about. Particularly if you look at the return to very strong growth out of North America, almost all the vertical industries participating in it. And more on TCS specific basis, if you look at the kind of customer metrics that we have shared, the broad-based nature of that growth shows industry-wide adoption of many of the transformation trends that we called out early on. So overall a validation of trends that we have spoken about.
Latha: The deal wins, one can understand revenues, fulfilment is here-there, this quarter-that quarter, but deal wins lower than the last quarter, that was a bit of a shocker that is at variance. Surely no threat to your double-digit growth expectation?
Gopinathan: The deal wins are very healthy. At $7.6 billion, well above 1.2 times and that is much above the industry trend of 1-1.1. So, on a like-to-like basis, $7.6 billion is almost 25 per cent higher than what we had reported in the same quarter of last year. So, the deal trends are very healthy. And if you look at individually, the kinds of information that we have shared on the nature of the deal wins. In our press release, we have given a lot of information about the kinds of projects that these deals are coming from. They are all multiyear kind of transformation projects, which will have a strong offtake on an ongoing basis. So, both in terms of the current quarter number, comparing it historically as well as nature of the deal wins, they all continue to be very-very supportive of the trends we have spoken about.
I would rather address your question directly. There might be commentary and about where the current expectation is, more in terms of people trying to anticipate what we are saying, but from our perspective, two things are very important. One is from a strategy perspective from what the trends we called on and the trends that we are investing on. Is that staying true? Absolutely, it is true.
Second, from the commentary that we gave out when we started talking about this kind of demand trend. Our results are also bearing out on that of commentary. Other than that short-term expectations, whether they have met or there is a mismatch, that is something we comment about. So, that's probably the difference between the way you are looking at it and the way we are looking at it.
Latha: There is no denying that the attrition rates, the wage hikes, all of them, they are written all over the place and all over the industry, all over the economy. Are you able to push off something in the nature of price hikes? Has even a conversation started?
Subramaniam: The demand environment is good and we have been hiring the talent uniformly across various quarters. Our customers do recognise that there is pressure on talent because they also face attrition whether it’s in their own organisation or in their captives. So, net-net they are accommodative about the situation and the fact is that we have been able to meet our customers’ demands for skill sets and talent and been able to execute all our programmes flawlessly over the last several quarters, including the one pass by where we completed two of our large execution in Europe.
Latha: You alluded to electric vehicles (EVs) as an interesting area when you spoke about growth and transformation. Which areas are you alluding to?
Gopinathan: EVs are a very important part of the equation and we are participating on both sides, both the electrification and the larger case. Investments of the OEMs, which are a large customer segment for us, as well as the startup ecosystem, and the entire new age pure EV players, there is a whole spectrum of companies that are coming up and we are participating on that side also. OEMs are much bigger because of our installed base, but the growth and transformation thing that we are talking about is much wider than this. It is both from the TCS perspective, the participation in the growth and transformation agenda of customers, which varies from industry to industry. And in most industries, customers are embarking on significant investments to drive either revenue growth from new segments, in certain cases servitization of what they are doing, in other cases, transforming the business model to participate in different parts of the value chain. So significant growth and transformation activity is happening at the client level and what TCS is systematically investing in doing is to participate in this to a much greater extent than what we have traditionally participated in.
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