TCS expects the BFSI needle to start moving this quarter
August 9, 2020 Santa Clara / CA / USA - Tata consultancy services ltd. (TCS) offices located in Silicon Valley; TCS is an Indian multinational IT service and consulting company part of the Tata Group

India’s largest IT company TCS says little has changed in terms of client sentiments on ground, as it delivered 1% sequential revenue growth in the third quarter. The company which saw its BFSI segment – which is banking, financial services and insurance – de-grow by 3% on a yearly basis, hopes that this segment must start picking from this quarter.

The BFSI segment is where most IT companies get a third of their revenues from. “Furlough impact in Europe and two large programmes coming to an end affected the BFSI segment this quarter. Their replacement programmes haven’t started,” TCS CEO K Krithivasan said at its earnings press conference on Thursday evening.

It bagged $8.1 billion in deals during the traditionally slow December quarter — but missed its guidance of $9-10 billion deal wins per quarter. While most brokerages call it a modest deal-win, the company management is upbeat.

“The situation has not deteriorated from the last quarter, which should be taken as a positive sign. We have won these deals without any mega-deal support which is fantastic,” said N Ganapathy Subramaniam, chief operating officer (COO) of TCS.

The company also indicated that the stress in the BFSI segment which existed all through the financial year, might have bottomed out. “You should see the needle moving from this quarter,” Subramaniam said. Its overall qualified deal pipeline has also increased.

The company sees European markets also doing better in the coming months. North America however is showing no indications of any change. “There was a sense of optimism when the interest rates were not raised, but it has not resulted in ground-level decision making,” Krithivasan.

He also added that too much should not read into client budgeting for the coming fiscal year either. “Clients are agile and make their decisions on a quarterly basis,” insisted the CEO of the company.

Rampdowns: Not for ‘new’ wins

The street has also been concerned about the slow conversion of deals into revenue for the last few quarters. IT sector clients stalled discretionary spending, pausing projects affecting revenue growth. While the stress continues to exist, this phenomenon hasn’t affected its ‘new’ deal wins.

“We have not seen any delays and suspensions in the deals we have won in FY24 and Q4 of FY23, except for maybe operational delays. The programmes that started 2-3 years back, long-running programmes that started during the pandemic are being paused,” said Krithivasan.

Along with TCS many IT companies are seeing a disconnect between total contract value (TCS) and revenues. Many clients who re-think programmes which do not provide the return on investment (RoI) as per their changed cost-dynamic – have been ramping them down.

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