Tata Consultancy Services Ltd (TCS) expects earnings to rebound earlier than analysts estimated and it is poised to beat global consulting rivals such as Accenture with efficient execution of deals, said a senior executive at India’s largest software services company.
“It’s the year end for most customers and they have their ways of controlling spending, so we focused on execution," said N. Ganapathy Subramaniam, chief operating officer at TCS told Mint in an interview. “We’ve always said that currency and execution are the two engines that will have to go hand in hand to achieve your aspirational margin band and, provided that currency plays its part as in this quarter, we’ll get there sooner than you’d think".
TCS reported a meagre 0.3% sequential growth in revenue in constant currency terms in the December quarter, slower than the close to 1% growth analysts were expecting. The comments from Subramaniam could soothe investor concerns over the tepid earnings .
Large banks in North America and the UK tightened their spending in the fiscal third quarter. For retail as well, the fiscal third quarter is usually a subdued one for technology spending, according to TCS.
TCS’s revenue growth was led by life sciences and healthcare (17.1%), communications and media (9.5%) and manufacturing (9.2%) while verticals such as BFSI (5.3%), retail and consumer packaged goods (5.1%), and technology and services (3.3%) showed modest growth.
“We recently automated processes for a large investment banking customer where we would have otherwise billed for 200 associates. So, we are winning new customers by optimizing their cost base by disrupting ourselves," said Subramaniam.
He said that the ability to continuously redeploy, hire and plan for future talent needs remains critical to the company’s execution model. TCS is increasingly developing products and platforms that can be offered in a marketplace model by shifting part of the customer’s requirements to platforms. It is also limiting long-term deals to up to five years duration for better revenue visibility.
Last month, when US-based Accenture posted above estimate earnings report for the November quarter, sector analysts warned that it was unlikely to translate to similar growth for Indian IT firms.
Accenture reported 9% year-on-year growth with “new" services (also termed as “digital" by Indian companies) generating 65% of revenue while 60% of the deal total contract value came from consulting bookings. TCS had reported 33% digital revenue earns from digital business till Q2 but has discontinued reporting the number in Q3 citing the “complex" nature of deals.
While Subramaniam acknowledged Accenture as TCS’s best competition at this point, he said consulting deals for TCS came across multiple levels and the company is building the capacity to identify customer pain points and offer suitable solutions. “We’re building what we call consulting and service integration team which has done a great job of scaling up to identify such possibilities. This helps us win large transformational deals. These are the areas where we will compete and win (against global consultancies)," he said.