“We believe India’s expected growth to be 7-8%; (it) has so many opportunities. If you don’t participate in India, then you will be missing out in a big way over a period of time,” K Krithivasan, chief executive at TCS, told ET.
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In contrast, some of its peers have chosen not to focus on India, arguing that it’s a tough market to crack. Krithivasan said the acute downturn in global technology spending since the pandemic, specifically in the US, could ease slightly after this year’s presidential elections — offering a glimmer of hope for India’s $250-billion IT services industry.
The US accounts for nearly half of TCS’ revenue and any recovery there augurs well for the Mumbai-headquartered company, which snagged a record $13.2 billion of deals in the previous quarter. A confident-sounding Krithivasan — who will complete a year at the helm of TCS in June — said his agenda now is to bring back growth for the $29- billion company.
In addition to India, where TCS’ business grew by over 37% in the fourth quarter of FY24, the company is increasing its focus on new markets such as the Middle East, Africa and Latin America. Demand in these regions acts as a cushion for growth during tough times.
“We expect these markets to grow faster on a sustained basis for a longer period. So, we will actually be increasing our focus (there),” the CEO said. Pointing out that several markets in the Asia Pacific region are becoming “growth markets,” Krithivasan said the company is seeing demand across Thailand, the Middle East and Saudi Arabia.
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“Latin America has traditionally done well, but we believe we can do much more,” he said. “They are not easy. You need to stay with them, and they have a different set of factors at play, but you have to work and make it happen.” TCS, which is the largest software exporter globally after Accenture, is “more optimistic” about demand reviving in the “medium term” for India’s beleaguered IT industry. The pain in the sector is “bottoming out” since key verticals of banking and financial services have not shrunk significantly even as demand remains under stress, according to Krithivasan.
“…From the deal wins, global footprint and our conversations, we believe that particularly from BFSI (banking, financial services and insurance), there are opportunities in some geographies that will help us drive growth,” said the 59-year-old, while recommending caution. “I don’t want to call out if it (demand) will happen, or turn positive, in the immediate quarter, but in the medium term, we are becoming more optimistic,” he said in a post-earnings conversation with ET.
Last Friday, TCS said its net profit grew 9.1% on-year to Rs 12,434 crore in the final quarter of 2023- 24, beating expectations. The strong performance came on the back of increased efficiency, productivity gains and lower subcontracting costs. TCS recorded a 3.5% increase in revenue year-onyear to Rs 61,237 crore. The year was marked by plunging demand for technology services globally due to macroeconomic uncertainty and geopolitical strife.
For the entire fiscal year, TCS reported revenue of Rs 2.4 lakh crore, up 6.8% on-year and 3.4% in constant currency. The net income came in at Rs 45,908 crore, up 8.9% on-year. FORWARD-LOOKING
Responding to queries on the prevailing uncertainty in the US market, Krithivasan said that “once the market knows what the new government’s policies are, they (businesses) will take appropriate decisions. I’m not attributing all the uncertainty to that, but some amount of certainty also (definitely) will come in.”
TCS reported operating margins of 26% and a net profit margin of 20.3%, which is the highest in the industry. Despite a price-competitive market, where some companies are reportedly picking loss-making contracts or deals at 0% margins to bolster their growth numbers, TCS has managed to keep margins high through better execution.
“This quarter, the biggest margin improvement came from reduction of subcontractor expenses and utilisation improvement,” said Krithivasan. While the IT services firm will continue to pick deals that are win-win for the company as well as for customers, “there are some deals we may do for a lesser margin because we see there is a long-term potential. But (it) must have a strategic reason; we will not just do it to shore up our topline,” said the CEO.
