We still need an economic trigger for a turnaround in business sentiments: TCS CFO Samir Sheksaria

Even as TCS beat market estimates in Q4 FY24, TCS CFO, Samir Seksaria is still cautiously optimistic for the next fiscal year. As industry continues to pull back on tech spends, TCS’ tech transformation projects are still on hold. Seksaria believes that a macro trigger is still needed in the horizon to change market sentiments of the industry.

TCS margins have hit the 26-28 margin band finally after three fiscal years, when you reported 26 per cent margin for the closing quarter of FY24, are margins going to continue to grow in FY25 as well?

If we look at last year, we had significant headwinds, and critics argued that the nation building deals taken by TCS will have an impact on margins. However, our margins have only improved by a 100 or so basis point every quarter, even as other macroeconomic headwinds have also existed this fiscal year. This has been done through strong operational execution and disciplined rigor has been very well. For the next quarter two things will play out – we will be taking our annual cycle of increments which has an inverted impact on margins. Secondly macro uncertainties have still not abated. That will impact margins next quarter. Growth is on the horizon which will give us significant margin gains as well.

TCS performed better than market estimates this quarter, is this a sign of better times to come? When can we expect a turnaround in FY25? 

Timeline of the turnaround is still unclear in the near term. However we are fairly confident for the medium to long term. We are fairly positive on account of the deal wins we have had through the year, those that came before and our pedigree of execution. We have been able to convert deals into revenues also. If you look at the demand drivers, whether it is for cost and optimisation and transformation projects, those have been playing out very well. The reason that we are cautious in the near term is because the events that started in January 2023 with the Silicon Valley Bank collapse, followed by large layoffs by big tech firms – while they were two industry specific events they spiraled into caution across the industry. And those sentiments have still not abated. We still need an economic trigger to change the sentiment.

So discretionary spends are still not back on board, what has that meant for the upcoming deal pipeline for TCS? If you had to look at the 13 billion dollar order book for this quarter- is there a clear preference for cost optimisation deals as the market still remains cautious?

That has been both a headwind and a tailwind. On one hand customers are preferring projects and deals with immediate ROI, which means that projects for tech transformation are at a halt. TCS has benefitted in bagging cost optimisation deals because of our pedigree of execution. The headwind that has arrived is that yes we are encountering project pauses and cancellation. Regarding our future order book, we are getting a good mix of tech transformation projects as well as cost optimisation projects, there has been no significant change on that front. 

One mega deal in the previous quarter has given you a record order book this time around – what can we expect for the next fiscal year?

In the last fiscal we announced 3-4 mega deals. We have a few mega deals in discussion at the moment as well. But we cannot give you an exact number of deals which we will announce next fiscal year since it can take anywhere from eighteen months to two years for these deals to come through.

You had to take certain cost optimisation measures to counter business slump as a result of macro headwinds – are any of these changes going to be permanently implemented in the organization structure going forward?

When we talk about delivery execution and operational rigor, these are not one time measures. One of the most visible changes you have seen is the subcontractor cost optimisation, it cannot be a one time change, it has happened through the year across the quarters. Now there is an element of demand and supply dynamics that play here as well. If we get an unexpected increase in demand, we will tap into subcontractors. But we have built our capacity when we faced supply side constraints so we will tap into our bench going forward. 

Will gen AI help TCS in optimizing costs?

So TCS using gen AI for internal cost optimisation is something that is yet to show results because we are at the early stages. It will help in optimizing costs but we dont know to what extent. So far, the productivity gains for gen AI at a program level – it is still early days.

Published on April 15, 2024



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