TCS eyes double-digit expansion in FY19: COO N. Ganapathy Subramaniam
It is not the TCS’ guidance but recent deal wins, stable senior management team, and execution ability makes the senior management believe of return to double-digit growth
Bengaluru: There is reason why Rajesh Gopinathan, a man who rarely lets down his guard, now comes across as sprightly and sports a smile.
With help from Tata Sons chairman Natarajan Chandrasekaran and the senior management team at Tata Consultancy Services Ltd (TCS), CEO Gopinathan is now poised to lead his firm to a double-digit growth in 2018-19, which will be the fastest since the company reported a 15% growth in 2014-15.
TCS’s recent deal wins, including two of the largest multi-year billion dollar contracts, in addition to more contracts it expects to close in the coming months, a stable senior management team, and its industry-leading execution ability to complete a project without glitches are the primary reasons behind this optimism, according to a senior executive of the company.
“I believe we should have double digit growth in FY19,” TCS’s chief operating officer, N. Ganapathy Subramaniam told Mint, in an interview last week, adding that this should not be interpreted as the company’s guidance as TCS does not give any quarterly or yearly growth outlook.
“This is not our guidance but as a management team, we have had this major focus to get back to double digit growth. This is one of the strategic KPIs (key performance indicator) for all of us (senior management team),” said Subramaniam, who took over as COO in February, when Gopinathan took over as CEO.
This reversal of fortunes at TCS is remarkable as for 13 quarters it has either underperformed or, at best, managed to match analysts’ estimates.
TCS has struggled to generate more business from large banks in US, which account for over half of its overall revenue. Understandably, TCS’s return to form does not imply that the company—and its peers—are out of the woods.
Structural challenges remain with the rise of cloud computing, along with a push towards automation and artificial intelligence platforms, meaning that IT vendors earn less for the same scope of work done in the past.
Finally, all homegrown companies earn less than a fourth of revenue from digital, the fuzzy term to define all new technologies like data analytics which most Fortune 1000 clients want their IT vendors to offer to help them run their business better.
Accenture Plc, which is twice the size of TCS, generates more than half of its business from digital technologies, and a faster growth from this business is one reason behind the company’s projected 10.4% dollar revenue growth in the current fiscal.
For this reason, many analysts are sceptical on Indian IT firms’s growth trajectory and unsure if it is more than a dead cat bounce. Still, TCS remains confident.
“We have been investing in digital technologies. If you look the kind of large deals we are winning and the other deals we are working on, here the credit goes to the stable senior management team we have. Again, we have resolved each of the three soft spots we had in Diligenta, Japan and Latin America. So overall, we are reasonably confident (of achieving double digit growth),” said Subramaniam.
“But here, I’ll share why we are not coming out and saying this. The thing which bothers us a bit is if there can be any impact of Brexit, a new government getting formed in Germany and what it could mean for Europe, parts like tax reforms and H1 related issues in the US… So these are uncertainties on which I cannot really put my thumb on, and say this is how they will play out”
Still, TCS’ optimism appears justified, according to deals publicly announced and according to three company executives.
A 1% sequential growth in the current January-March quarter will help TCS end the current year with $18.95 billion in revenue, a 7.8% dollar growth in 2017-18.
This means TCS will need to improve upon its current year’s growth by 220 basis points to achieve at least a 10% dollar revenue growth in 2018-19. One basis point is one-hundredth of a percentage point.
TCS stands to make over $200 million as part of its over $2-billion contract with a unit of Dutch insurer Aegon NV, assuring the company of more than 110 basis points in incremental growth. Another $60 million in business from a unit of Lloyds Banking Group, $17 million from Rolls Royce Group, and business from Marks and Spencer contract and renewed contract with Nielsen, together bring $100 million in new business or over 60 basis points incremental growth in next fiscal.
Still, two challenges ahead for TCS to achieve its plan of double digit growth will be the impact of cross currency movement and TCS’s ability to retain contracts which will be up for rebid, including the largest contract with Citibank.
“Based on our execution experience, I do not believe our ability to pull revenue out of these (new and existing) deals is in question,” said Subramaniam.
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