TCS Innovating for Greater Futures

Unless the recession plays out its fullest blow, the estimated revenue growth for TCS will be around 14% within EBITDA growth of 10.5% in the next FY

Revenue

Rs 1,957,720 mn

The bellwether company of the Indian IT landscape, Tata Consultancy Services (TCS) displayed an annual performance that has been nothing less than ‘Innovating for Greater Futures’ as the company highlighted in its address to the industry. This theme resonates with its accelerated innovation in the enterprise segment as the organization pivots with a shift from improvising (to cope with the challenges of the pandemic) to growth and transformation.

The success, as observed in these areas, has more to do with an increased degree of cloud adoption (as clients embarked on multi-horizon cloud transformation journeys) and with a surge in outsourcing-led deals. The revenue growth for FY ‘22 was to the tune of 16.8% while EBITDA growth was around 17.1% compared to its previous year revenue growth performance of 4.6% and EBITDA growth of 7.6% respectively. The TCS leadership had stated that though the geopolitical tensions in Europe and their impact on global economic growth were some real threats, enterprise spending on technology was far more resilient. While the evolving market dynamics had an impact and have reprioritised programs, the technology spending numbers continued to grow and led to sustained momentum for the company during the fiscal year.

Most notably, TCS is seeing three distinct trends in operations’ transformation opportunities:

1) Clients are looking to leverage next-generation technologies to create a leaner, agile, resilient and efficient operation. They also intend to plough back the savings into business transformation initiatives.

2) There is a pattern of growing incidents of multi-services integrated deals by bringing multiple elements of the operation stack—clients are able to not only drive greater accountability but also take up transformation programs that are more integrated than before.

3) Growing vendor consolidation opportunities – clients prefer to bring down the number of service providers they work with to a few select partners who possess the right innovation capabilities and can help them to scale.

The full-year order book was at US$35bn for FY22, a book-to-bill ratio of 1.3x. TCS witnessed a steady growth and added clients 8, 34 & 78 clients in the revenue buckets of US$1mn plus, US$10+mn and US$100+mn categories, respectively. However, the company witnessed a sharp spike in employee costs which grew 17% in FY22 (vis a vis 7% in FY21). It was primarily due to the supply-side crunch that led to increased hiring costs, retention costs and higher-than-average wage hikes during the year. In spite of weakening economic indicators around, the deal pipelines were stronger and the company has not seen any serious signs of concerns.

We can see that the company has been making strong strides in verticals like retail, public services and BFSI. It has been showing consistent wins in particular regions like UK – with some clients bagged in US and Australia as well. Its risk management, Cloud projects and HCM offerings have shown massive adoption this year.

Future Outlook

We do expect supply-side headwinds to persist in FY23, along with an increase in travel and facility expenses, the focus would be to keep margins stable. However, the 26-28% margin levels remain the long-term aspiration for the company. Even if we bake in potential risks to IT demand given a deteriorating macro, especially across key developed markets of US and EU. We don’t see any material cuts, unless the recession plays out its fullest blow. The estimated revenue growth for TCS will around 14% within EBITDA growth of 10.5%.

Greater Futures maybe, well, on its way.

TCS witnessed a steady growth and added 8, 34 & 78 clients in the revenue buckets of USD1mn plus, USD10+mn and USD100+mn categories respectively. The company witnessed a sharp spike in employee costs which grew 17% in FY22 (vs 7% in FY21).

Key Wins and Handshakes

•             Rail Delivery Group for UK Government’s Rail Data Marketplace

•             ICICI Bank for lending platform

•             HR services firm from Amsterdam - Randstad for Digital Core Modernisation

•             TAP Air Portugal for digital transformation

•             UK retailer Sainsbury for Cloud-First initiatives

•             Zurich Insurance for insurance business transformation

•             Israel’s OFEK Credit Union for digital financial services

•             Healthcare major Penumbra for cloud transformation

•             US supply chain major C&S Wholesale Grocers for digital initiatives

•             UK’s broadband player Community Fibre for business operations modernization

•             Australian Energy retailer for customer experience areas

•             US Pet Retailer Petco, for AI-powered merchandise optimization

•             Duluth Trading Co. for omni-channel check-out areas

•             Aadhar Housing Finance for lending and securitization platform

•             Nokia for Cloud HCM and Employee Experience

•             Marks and Spencer for HR and Colleague Experience areas

•             UK’s Financial Ombudsman Service (Ombudsman) for digital transformation

•             With Barclays for VHAB gamified solution

•             With AWS on Quantum Computing

•             With Microsoft for autonomous solutions

•             With UK’s National Robotarium for AI and Robotics’ research

•             With The Walton Center NHS Foundation on Patient Care Areas

Rajesh Gopinathan

CEO, Tata Consultancy Services

By Thomas George

thomasg@cybermedia.co.in