Clients will try to conserve cash if they see difficult times ahead: TCS CEO

• Client sentiment is cautious and it won’t change until a clearer picture of the global economy emerges, says TCS CEO.
• Revenue growth will be back once certainty comes in, but we won’t when that is, he added.
• In Q2, revenues from the North American market grew by 0.1%, while its key BFSI market de-grew on a YoY basis.

After posting its first sequential revenue drop in four years in the second quarter, TCS’ CEO painted a very hazy picture of the quarters ahead. Insisting that growth will come back when uncertainty ends, K Krithivasan, refused to place a timeline on it.

The company posted a 0.2% sequential decline in dollar revenues to $7,210 million in Q2 FY24, while its net profit grew 2.3%. However, it has bagged large transformation deals and is now standing on an orderbook of $11.2 billion.

After seeing three successive quarters of good deal booking, it’s also confident of bagging $9-10 billion worth of deals this financial year. What it’s not too confident of is how much of this order book will translate into revenues. As more projects get paused, it will add little to its revenues.

Explaining why its Q2 revenues dropped, Krithivasan said, “There is a natural degrowth every quarter due to closure of projects and natural reduction. There is revenue leakage because we are unable to fully compensate for the degrowth with others. That’s why TCV (total contract value) is not reflecting in revenues.”

‘Client sentiment is cautious’

IT clients across the world have been cutting back on discretionary spending which has dented growth in the sector — for half of this year. In particular, revenues from its most important market North America grew by 0.1% year on year. Its next key market Continental Europe, grew 1.3% in Q2, even as the UK, Middle East & Africa and Latin America showed double-digit growth.

Its key sector also of BFSI also showed de-growth of 0.5% – indicating that there is region-wise and sector-wise softness.

“Once certainty comes into the market, there will be (revenue) growth. But I won’t predict when that is. Until there is uncertainty in the global economy, moderation will continue. Customers will try to conserve cash if they expect difficult periods ahead. Overall, the economic picture is slightly confusing,” said Krithivasan.

The company is seeing a lot of enquiries for cost optimization projects, as client sentiment is still cautious. It won’t change until a clearer picture of the global macroeconomic environment emerges. For now, its fortunes are linked to the economy, war and much more.