Forbes India 15th Anniversary Special

Rajesh Gopinathan named new TCS CEO

TCS Q3 profit rises 10.9 percent on sales pick up, digital wins kick in as financial clients are seen reviving tech spending for business growth

Harichandan Arakali
Published: Jan 12, 2017 05:39:42 PM IST
Updated: Jan 18, 2017 07:43:00 PM IST

Rajesh Gopinathan named new TCS CEO
Image: Danish Siddiqui / Reuters (for illustrative purposes only)

In a major development on Thursday, it was announced that Rajesh Gopinathan will take over as the Chief Executive Officer of Tata Consultancy Services, from February 21, 2017.

The chief financial officer of the IT behemoth will take over from current N Chandrasekaran, who is set to take over as the new chairman of the $103 billion-Tata group, on the same day.

Gopinathan will have to navigate the company through some choppy waters as global uncertainty owing to events like Brexit and Donald Trump’s ascendance to the US presidency are impacting the IT sector.

To support Gopinathan, TCS also named N Ganapathy Subramaniam as the company’s president and chief operating officer. Subramaniam is currently president, TCS Financial Solutions.

“TCS’ core strength is its strong leadership talent that is collaborative and aspirational. I have been privileged to lead this company of great professionals over the last seven years…I am absolutely delighted that the board has chosen both Rajesh and NGS (Subramaniam) to lead this company into the future. I am proud of the capability they have to take TCS to greater heights. I look forward to a continued relationship with TCS and the management team,” Chandrasekaran said in a statement as chairman of Tata Sons.

Earlier in the day, TCS, India’s biggest software services company by revenues, reported fiscal third-quarter profit rose nearly 11 percent in a quarter that typically has fewer working days and billable hours due to the year-end holidays. Sales in dollar-terms rose 0.29 percent from the previous quarter, beating some analysts’ estimates.

Chief Executive N Chandrasekaran also signalled the beginning of a return to spending on new business by financial clients in North America and Europe, who account for about half of TCS’s revenues.

“BFSI is looking for investments primarily because they have been on the journey of spending money on compliance and cost take-outs, and shrinking the institution for the last five six years,” Chandrasekaran told reporters in Mumbai, discussing the results. “Now they are ready to grow.”

Profit for the three months ended December 31 rose to Rs. 6,778 crore from Rs. 6109.5 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.

Sales in dollar terms, the currency in which India’s IT sector earns much of its revenue, rose 0.29 percent to $4,387 million from $4,145 million for the September quarter. That compared with a projection of 0.2 percent by analysts at HDFC Securities.

Financial clients accounted for more than 40 percent of TCS’s revenue for the December quarter. Chandrasekaran added about them: “They have to introduce new products and services, new digital channels, new insights they have to get with analytics. All of this means they have to invest in technology and I think that cycle is happening now.”

In America, Indian IT’s largest market, President-elect Donald Trump’s plan for public spending on infrastructure and financial deregulation will rejuvenate the US banking and finance sector, Sandeep Gogia, associate director at Mumbai’s Equirus capital said in a recent note. Dismantling the Dodd-Frank Act, which was put in place after the 2008 financial crisis, will reduce the compliance burden on banks, he said, freeing up money on spending including technology.

India’s $110 billion IT services sector is entering the New Year facing potential restrictions on its mainstay H-1B visas, which allows the sector to send staff from India to work at client sites. Customers also expect greater use of automation in the fulfilment of their IT orders, knocking the old time-and-material-based billing option.

Clients expect more in areas such as digital technologies to help them make money, and not just save costs. Therefore the IT companies’ profits are under pressure, their main business isn’t growing and they are forced to train and recruit people to deliver the new-age services and solutions. For the right set of services, however, the opportunity is also out there.

Among Tata Consultancy’s biggest customers, “there’s a significant budget in digital, and there is a significant market share opportunity in consolidation on the traditional business so our addressable space and opportunity is pretty good” CEO N Chandrasekaran said in a press conference discussing the results in Mumbai. “We need to continue to win in both,” he said.

“On digital the opportunity is all pervasive, across user experience, getting customer insights using analytics and machine learning and in building pure, true digital company, making data real-time, so across the board there is opportunity and we need to capture that and I think we are well prepared,” Chandrasekaran added.

Revenue from digital rose 6.6 percent in the December quarter over the previous quarter, and more than 30 percent from the year-earlier quarter. Overall, revenue from digital technologies-led services accounts for 16.8 percent of the company’s total sales.

For the fiscal third quarter, the three months ended December 31, revenues at the top five companies will rise by 0.5 percent from the previous quarter and 6.9 percent from the year-ago period, analysts from ICICI Securities estimate. For the full year ending March 31 2018, analysts project revenue growth for the Top-five companies to be “modestly higher” at 8 percent versus an expected 7.2 percent in the 12 months to March 31, 2017 and 7.1 percent reported in FY16.

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 25.

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