TCS CEO & MD Krithivasan Exclusively On Moneycontrol | TCS Q3 Earnings | MC Exclusive | N18L

Summary

In this earnings interview, TCS CEO Krithi Vason discusses the company's performance for Q3, which showed mixed results with a decline in revenue but a positive outlook. The company reported strong deal bookings, robust demand, and increasing transformative projects, especially in Europe. Despite challenges like seasonal weakness and macroeconomic uncertainties, TCS remains confident about growth, particularly in the upcoming fiscal year. Vason touches on topics like AI, automation, hiring plans, and how TCS is adapting to industry shifts, aiming for a better year ahead while continuing its global expansion efforts.

Takeaways

• 😀 TCS's third-quarter results show a mixed performance, with a decline in revenue but a 4% increase in profit due to better operational efficiencies.
• 😀 The CEO emphasizes that Q3 is traditionally weak due to seasonal factors, and the focus should be on the positive outlook for the coming quarters.
• 😀 TCS's total contract value (TCV) is strong, with robust bookings across various geographies and industries, indicating positive future growth.
• 😀 There is an increasing percentage of discretionary projects in the pipeline, signaling a revival in IT spending.
• 😀 Deal cycles have shortened, which is seen as a positive sign of market demand and client engagement.
• 😀 The CEO remains optimistic about the U.S. economy under the new administration, expecting policies that support growth, despite concerns about tariffs and inflation.
• 😀 TCS has reduced its dependency on H1B visas, with over 50% of its U.S. workforce being local, reducing vulnerability to visa policy changes.
• 😀 The BSNL deal, which contributed significantly to revenue, is nearing completion, and TCS plans to replace this income with new international projects and increased revenue from other markets.
• 😀 The India market continues to show strong growth, and TCS is expanding into other regions like Latin America, Africa, and Asia-Pacific to further diversify its revenue streams.
• 😀 Despite some quarter-to-quarter fluctuations in headcount, TCS plans to onboard 40,000 trainees, with long-term headcount growth expected to align with revenue growth.
• 😀 TCS is cautiously optimistic about the broader IT services sector in 2025, with hopes for a recovery in discretionary spending and a shift from cost-cutting to transformational projects.

Q & A

What was the overall performance of TCS in the third quarter as per the transcript?

The third-quarter performance was mixed, with a decline in revenue in both rupee and dollar terms, which is typical for the seasonally weak Q3. However, the profit after tax (PAT) increased by 4% quarter-on-quarter due to better operational efficiencies.

What are the key positive indicators for TCS looking forward?

Key positive indicators include strong total contract value (TCV) bookings of over $10 billion, robust hiring plans, and optimistic projections for FY25 being better than FY24. Additionally, TCS is seeing a shift towards more transformative engagements in their pipeline.

How does TCS view the potential impact of political changes in the US, such as a possible Trump administration?

TCS is cautiously optimistic, believing that any new policies under a potential Trump administration would aim to accelerate the US economy rather than hinder it. However, some industries, such as healthcare, are closely monitoring potential changes in policies related to insurance and Medicare.

What is TCS’s stance on the H1B visa discourse and its potential impact?

TCS is not overly concerned about the H1B visa issue. Over the years, they have become less dependent on H1B visas, with more than 50% of their US workforce being local hires. They believe they can compensate for any reductions in H1B visas through other methods, such as offshoring or increasing local hiring.

How has the BSNL deal impacted TCS's revenue, and what are the future plans for replacing it?

The BSNL deal has peaked and is expected to wind down by Q4 or Q1 of the next fiscal year. TCS plans to replace the lost revenue through new international projects, increasing revenue from existing markets, and focusing on expanding into other regions such as the Middle East, Africa, and Latin America.

What was the performance of the India market for TCS in Q3, and how does the company view its future growth?

The India market saw a growth rate of 7.2% in Q3, driven primarily by seasonality rather than the BSNL deal. TCS believes this growth is sustainable and aims to expand further in India by focusing on industries beyond BFSI, including increasing the global talent pool within the country.

Why did TCS experience a decline in headcount in Q3, despite positive hiring plans for the future?

The decline in headcount was due to Q3 being seasonally weaker, and TCS opting for optimization measures, including reducing hiring for that quarter. TCS focuses on balancing headcount with the demand and project pipeline, ensuring improved utilization and margin control.

What is TCS's hiring outlook for the next fiscal year?

TCS plans to onboard 40,000 trainees next year and expects a more favorable hiring environment. The company is optimistic about seeing a recovery in demand and believes next year will be better, potentially achieving double-digit growth.

Will TCS see a shift in its deal mix in the coming quarters?

Yes, TCS is expecting a shift towards more transformative and discretionary projects, as opposed to cost-cutting or optimization deals. This change is already being observed in their pipeline and should continue if the trend holds.

How does TCS view the broader domestic demand environment in India and the global market for next fiscal year?

TCS sees continued demand in India, especially in BFSI, but also in other industries where it is expanding its global talent pool. Globally, TCS expects larger deals, particularly in AI, which is becoming more mainstream and will play an important role in future projects.