TCS reports larger digital contracts, traction in Europe boosting growth

Tata Consultancy Services (TCS) Chief Executive Officer Rajesh Gopinathan
Image: Danish Siddiqui (Reuters)

Tata Consultancy Services reported fiscal third-quarter numbers roughly in line with street expectations for the three months ending Dececember 31, 2017, helped not only by a pickup in the US, its largest market, but strong traction in Europe and the company’s growing ability to land larger contracts in digital services.

The quarter saw TCS win a $50 million contract categorised under digital services, which is the largest order the company has won in the area.

Chief Executive Rajesh Gopinathan is winning higher-value work from longstanding clients like Rolls Royce, which increasingly consists of end-to-end projects rather than piecemeal outsourcing, reflecting the more strategic partnerships TCS is striking with its large customers.

“Now we are on a run-rate of $4 billion in annual revenues from digital services. I’m encouraged by our ability to retrain and reskill,” to go after these opportunities, Gopinathan said in a conference in Mumbai, discussing the results with reporters, which was webcast.

That also reflects the mere 1,600 net additions to the company’s workforce, during the quarter, which took the total to 390,880 employees.

Profit for the three months ended December 31 fell 3.6 percent to ₹6,531 crore from Rs. 6,778 crore in the year-earlier period, and rose from ₹6,446 crore for the September quarter. TCS, counts Bank of America, Deutsche Bank, BP PLC, Walmart, Boeing and Volkswagen among its clients. Analysts at HDFC Securities were expecting profit of Rs. 6,563 crore for the fiscal third quarter.

Sales in dollar terms, the currency in which India’s IT sector earns much of its revenue, rose 1 percent to $4,787 million from $4,739 million for the September quarter. That compared with a projection of $4,779 million by analysts at HDFC Securities.

India’s $150 billion IT services sector is facing restrictions on its mainstay H-1B visas, which allows the sector to send staff from India to work at client sites on a temporary basis rather than hire local recruits at higher salaries. On the other hand, India’s top IT companies are winning orders to help their clients move to the cloud computing model, and tap data analytics to find new avenues of sales to end-customers or consumers.

This industry-wide transition will see the IT companies establish larger centres locally in America and Europe, hire more local recruits, become more consulting-oriented and build software-led services. For instance, Tata Consultancy’s cognitive intelligence platform, called Ignio, is “deeply embedded” in multiple client projects, Gopinathan told reporters at the conference.

Revenue from such “digital” solutions and services rose 14 percent in the December quarter over the previous quarter, and 40 percent from the year-earlier quarter. Overall, revenue from digital technologies-led services accounts for more than 22 percent of the company’s total revenues for the Oct-Dec period, TCS said in its release. That compared with 16.8 percent of the company’s total sales for the year-earlier quarter.

Second-ranked Infosys reports its fiscal third-quarter earnings on Friday and Wipro, India’s third-largest IT services company is set to report its results on January 19.