India’s largest IT services firm Tata Consultancy Services Ltd (TCS) expects to compete on merit for technology contracts from Air India, now owned by Tata Sons. Last week, TCS reported a 15.5% growth in revenue in constant-currency terms from a year ago to ₹46,867 crore, driven by broad-based growth across markets. Analysts however believe there are near-term margin headwinds in a supply constrained environment. On Monday, the TCS scrip fell 6.3% to close at ₹3,686.50 on BSE.
In an interview, N.G. Subramaniam, chief operating officer of TCS, talked about the Air India opportunity, demand environment and growth drivers. Edited excerpts:
Has the India business bounced back, and what’s driving its growth?
Our business is very broad-based in India and contributes about 6% to the total revenue. We work with private firms, banks, manufacturing companies, pharmaceutical companies, and the government sector. We work with almost all leading banks in India. In government, we work with the Passport Seva Kendra and some of the GST-related work. Passports are a major component of our business but we get paid only when the passports are issued, so the pandemic had impacted the business as the Seva Kendras were closed and passports were not being issued. Then, we have TCS iON, our learning and assessment platform, which helps in conducting exams. This is also a variable fee model wherein if the exams are postponed, we don't get paid. So, all of these affected our business in the last quarter.
Now that Tata Sons has acquired Air India, what is the opportunity for TCS?
Air India becomes another group entity and we work with other group entities on a competitive basis. We don't get contracts by default. We will have to win it on merit. Sometimes we will have to go and proactively pitch for it. Sometimes there will be an RFP (request for proposal). I don't think it will be given on a platter. But the acquisition of Air India is a very emotional event for many of us. I joined TCS in 1982. The first flight I took in my life was an Air India international flight in 1984 when I was deputed in the US…So, we will have to make it the best airline in the world and a lot of work is required. But it can be done and it should be done.
How do you see the technology spend for the rest of the quarters in your key geographies?
Last quarter, our growth in the US, which contributes more than 50% to our business, has been phenomenal with a 17% year-on-year growth. That is a very good sign, which means that clients are spending money. The US market is very vibrant right now with a lot of people spending on technology and a number of positions are open for different skill sets. We all look forward to bringing our people back to the US when the borders open up. The UK and Europe are in different stages of recovery and they are a bit cautious, because each one is a small country in terms of the geographical boundaries. So, if one country is affected, then it goes into a kind of chain. But I think it will change in about a quarter or so. Overall, the demand environment is very positive across the world.
Is this demand mostly from digital solutions or the traditional offerings?
It’s mix of both. Suppose, we have a contract from the traditional side for five years which is over and has come up for renewal. At the time of renewal, it gets bundled into a lot of automation, digital, and those kinds of offerings. During renewal, a traditional service gets bundled with modernization. That's the kind of demand that we see on the traditional side. Of course, there are new areas of digitalization that continues to take place.
Which sectors are at the forefront of renewing such contracts into digital?
I think retail is probably the first one followed by life sciences and healthcare. The financial services has always been ahead of technology and they continue to invest a lot more on digital than ever before. Now telecom, manufacturing, and others are all looking at the next area of digitalization. For example, manufacturing in the US is reimagining the supply chain by bringing in the next big wave of technology adoption. They are exploring ways to bring in automation, robotics, and those kinds of principles so that manufacturing becomes a lot more competitive. Much of the growth in the manufacturing sector also comes from the automotive segment because of the high technology adoption world over where almost every car company is moving towards electric vehicles. So, they are investing a lot in electric technology, batteries, and the infrastructure they need to create and reimagine the electric vehicle.