Demand softness a challenge in the near term but don’t see major cancellations: TCS CEO

• Client re-prioritisation is driving softness in the IT market, says TCS CEO.
• Don’t see any large scale ramp downs or cancellations, only one-off instances, says Krithivasan.
• TCS’ orderbook stands at $10.2 billion that has grown marginally over the last quarter.

The CEO of TCS K Krithivasan said on Wednesday that the demand for IT services to remain ‘soft’ in the near term due to the global economic situation.

He however refused to define the time period for the near-term, adding that he cannot predict how long it will take for the economy to recover.

"At the start of the pandemic, many tech projects were initiated. Now, such projects where the return on investment (RoI) is low or and not-so-business-critical programmes are either being paused, deferred or re-prioritized,” explained Krithivasan speaking at the Q1 earnings press conference.

“We don’t see any large scale ramp downs or cancellations. There could be one-off instances here and there. That’s not what is driving softness,” he added.

TCS says that clients who are initiating new projects are fairly confident. “Our cash conversion rate is very good and the pipeline is strong, supporting our belief that investment in technology will be strong in the long-term,” the CEO said.

N Ganapathy Subramaniam, the COO of TCS elaborated that the company is participating in the Middle East and India markets, especially in the small to medium sized deals across energy and banking sectors.

Within AI on the rise like never before, he sees opportunities in India. “The AI market is driven by integration. In India, digital stack is very popular. Every bank is looking at opportunities to integrate fintechs and startups to improve experience and volumes,” said Subramaniam.

Marginal growth in orderbook

India’s largest IT company is sitting on an orderbook of $10.2 billion that has grown marginally over the last quarter, and 24% year-on-year. It said it has managed to bag marquee deals during the April-June quarter.

“In the UK Life and Pensions administration space, we signed three new deals on our digital insurance platform,” said N Ganapathy Subramaniam, COO and executive director of TCS.

UK unlike most geographies has delivered a strong growth for the company as its business grew 16.1%. Its most important markets however saw low-single digit growth. North America grew 4.6% and Continental Europe grew 3.4%.

Also, its most key sector BFSI grew by a mere 3%. “Banking is doing ok as lending as a business is doing ok. Mortgage as expected was weak, and so is capital markets. Within insurance, property and casualty is weak but life insurance is strong,” Kritivasan said, giving granular data on segmental performance.

During the quarter, growth was led by life sciences and healthcare sectors which grew 10.1% and the manufacturing vertical which grew 9.4%.

Overall, TCS posted a 7% yoy growth in revenues on a constant currency basis. On a sequential basis, its revenue growth was flat, as expected by the market.