Slowdown hasn’t affected deal wins yet but seeing softness in long-term deals: TCS

• For the current financial year, TCS said that it’s likely to maintain its quarterly run rate of winning deals worth $7-9 billion.
• TCS’ COO Subramaniam added that it’s natural to expect some softness in long-term deals and decisions, given the macro environment.
• There is an increasing sense of caution amongst clients but it hasn’t made its way into deal wins as yet, says TCS.

IT major TCS on Monday said that it has not yet seen any caution that’s being exercised by clients making its way into its deal wins. It said that it’s likely to maintain its quarterly run rate of winning deals worth $7-9 billion.

“There is no need to change that kind of focus. In fact, we would like to win more,” N Ganapathy Subramaniam, the chief operating officer of TCS said in a press conference after it reported a 10% growth in July-September net profit to ₹10,431 crore and 4.8% growth in revenue to ₹55,309 crore, beating street expectations.

The order book of the company stood at $8.1 billion at the end of the September quarter.

Talks of a possible recession in its most important market – North America – has had equity markets worried about the IT sector. “We will know in 3-6 months about next year’s budgetary decisions,” said Rajesh Gopinathan, CEO and MD of TCS, referring to the US.

Subramaniam also added that it’s natural to expect some softness in long-term deals and decisions, given the macro environment. “With regards to Europe, we will see how the winter will be, and expect some softness,” he added.

Gopinathan said that Covid has proved that tech is core to transformation, growth and resilience and that TCS has a relevant portfolio for that.

“We are seeing an increasing caution in discussions with clients. We cannot say that we are totally insulated from it but as we said last quarter, we are vigilant of the environment and focussed on a set of customers,” said Gopinathan.

Last month, Accenture gave a weak guidance of around 8-11% for the fiscal year – which has made markets and analysts cautious about the prospects of the IT sector, and its demand outlook.

So much so that Jefferies too said that it will closely watch out for a revision in FY23 guidance from Infosys, HCL Tech and Coforge. “However, we do not expect it to happen as a part of the second quarter result announcements,” said Jefferies’ IT sector preview.

Since the last quarter, deal sizes have been coming down and that has continued for this quarter too. Most of the deal wins are in the $200-400 million range.

“There are none above $500 million and nothing to call out,” said Samir Seksaria, chief financial officer of the company. He also said that the headwinds from the supply-side challenges are abating – which has set them up well for the seasonally weak second half of the year.

Gopinathan said that they are staying close to the customers. “We are trying to carve a niche and minimize the impact of volatility,” he said.

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