TCS Q4: Investments in digital paying off, BFSI challenges to end next fiscal

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Tata Consultancy Services, the country’s largest information technology services exporter on Thursday said its investments in digital were paying off, and challenges in its largest businesses- banking, financial services and insurance and retail- will not continue into the next financial year.

"We are more optimistic about BFSI and the US market in FY19," said Rajesh Gopinathan, CEO, TCS.

Investment

The company reported fourth quarter and full year results on Thursday. Gopinathan was speaking at a post earnings press interaction.

All industry verticals - with the exception of BFSI- grew above company average, with three verticals growing in double digits YoY.

IT spending

While the banking industry has been spending on IT, analysts have pointed out that it hasn’t translated into a positive for TCS as banks are moving toward captives and insourcing.

Gopinathan said TCS was still seeing some transient issues in retail, but expects growth momentum to come back “very strongly” in FY19.

BFSI and retail have both been lacklustre for the Indian IT services players in the past year, but commentary has turned positive lately.

Last week, Infosys, the second largest IT software exporter, also said there were no macro trends in BFSI and said it expected this financial year to be better for the vertical.

Protectionism challenges

Revenue from Continental Europe grew 19.1 percent in the year for TCS, and 10.7 percent in the United Kingdom. North America, it’s largest market, grew 4.9 percent annually.

While the challenges of protectionism remain in the US- the industry’s largest market- signs of economic recovery are evident. Analysts have also pointed out that Europe is embracing outsourcing faster than earlier.

The company’s investments in digital have also shown in the numbers. Digital engagements contributed 23.8 percent of revenue in the March ended quarter, and saw a growth of 42.8 percent on an annual basis.

"We've been making investments in digital, and stability in the margins have been in the back of those investments,” said V Ramakrishnan, Chief Financial Officer, TCS.

Growth was led by the energy & utilities vertical (33.7 percent), travel & hospitality (25.4 percent) and life sciences & healthcare (12.6 percent).

“There is no doubt that the current quarterly results for TCS provide the much-needed optimistic outlook for the company to start its new financial year. Despite the rationalisation of investment through share buy backs and related payouts to shareholders, TCS still remains a giant in terms of size, often accused of being less agile and slower to react to marketplace changes. But the benefits that this brings to TCS is its ability to invest and diversify across industry segments,” said Sanjoy Sen, Doctoral Research Scholar, Aston Business School, UK.