Forbes India 15th Anniversary Special

Q1 2018: TCS numbers reflect clients' accelerated shift to the cloud model

India's top IT company by revenues continued to increase the proportion of revenues it categorised under 'digital' during the quarter

Harichandan Arakali
Published: Jul 13, 2017 07:24:25 PM IST
Updated: Jul 20, 2017 04:15:03 PM IST

Q1 2018: TCS numbers reflect clients' accelerated shift to the cloud model
TCS managing director and CEO Rajesh Gopinathan
Image: Shailesh Andrade/Reuters

Tata Consultancy Services, India’s biggest software services company by revenues, reported a 3.5 percent pick up in work billed over the previous quarter, as clients accelerated moving some of their IT on to the cloud. In US dollar terms, sales rose 3.1 percent, roughly in line with analyst estimates.

Chief Executive Rajesh Gopinathan signalled a stronger shift to the cloud and as-a-service model among his biggest clients in the IT giant’s biggest markets including North America and Europe.

Clients are becoming “leaner, responsive data-centric organisations … embracing cloud, analytics and automation,” Gopinathan said in a press release on Thursday, after the markets closed.

Gopinathan took over as CEO this year from N Chandrasekaran, who was named executive chairman of the Tata Group, one of India’s biggest conglomerates — spanning salt and tea to steel and cars.

The flip side, however, is India’s top IT companies are having to work harder, and for smaller deals at that, from large banks and financial businesses, Indian IT sector’s biggest clients.

Combined with wage hikes given during the quarter and the Indian rupee gaining against the dollar, profits fell more than some analysts expected.

Profit, for the three months ended June 30, fell 5.9 percent to Rs. 5,945 crore from Rs. 6,317 crore in the year-earlier period, Mumbai-based TCS, which counts Bank of America, Citigroup and Deutsche Bank as clients, said in a press release on Thursday after market hours. That compared with an estimate of Rs. 5,984.9 crore, or a 5.3 percent decline, by analysts at ICICI Securities.

Sales in dollar terms, the currency in which India’s IT sector earns much of its revenue, rose 3.1 percent to $4,591 million from $4,452 million for the March quarter. That compared with a projection of 3.3 percent by the analysts.

Gopinathan has reorganised TCS, with its 3,85,000 staff, to reflect the way the IT company sells new services such as those based on artificial intelligence, on the one hand, and to consolidate the organisation around markets that account for long-term revenues and separate out those that are still sources of ad hoc projects.

Revenue from digital services rose 7.6 percent in the June quarter over the previous quarter and 26 percent over the year-earlier period, TCS said in its press release.

Overall, revenue from digital technologies-led services accounted for 18.9 percent of the company’s total sales during the June quarter, higher than the 16.7 percent proportion for the fiscal year that ended March 31, 2017.

Growth in demand for as-a-service solutions continues to outstrip that of traditional services, consultancy Information Services Group, noted in a recent report.

During the June quarter, as-a-service (Infrastructure-as-a-Service and Software-as-a-Service) actual contract value climbed 32 percent, to $3.8 billion worldwide, while traditional IT contracts declined 3 percent, to $5.5 billion, ISG, which tracks contracts of $5 million or more, reckoned.
As-a-service contracts, which now account for 41 percent of the global sourcing market. “It won't be long before as-a-service spending reaches parity with traditional sourcing and even eclipses it," Steve Hall, a partner at ISG said in a press release on July 12.

Second-ranked Infosys reports its fiscal third-quarter earnings on Friday.