Tata Consultancy Services has much to celebrate. Earlier this week India's largest software exporter reported its best Q1 growth of 10 per cent year-on-year in the last three years. In fact, TCS' financial results for the first quarter of this fiscal not only sent its stock zooming up 5.5 per cent yesterday to hit a record high of Rs 1,995 apiece, but have also raised hopes of a sectoral turnaround.
"We are starting the new fiscal year on a strong note, with the growth engine firing on all cylinders," TCS CEO and managing director Rajesh Gopinathan said in a statement announcing the Q1 results, adding, "With a good set of wins during the quarter, a robust deal pipeline and accelerating digital demand, we are positioned well for the future".
So is the company finally back on a double-digit growth path? "In the medium term, the growth is definitely sustainable as it is broad-based across verticals and geographies. North America and BFSI - two large segments for us - are turning around. This is where the optimism is coming from," he told The Economic Times. The Tata Group flagship firm's BFSI vertical growth accelerated an impressive 4.1 per cent in the quarter under review.
But he does not rule out "one off events or economic turmoil" throwing a spanner in the works. Gopinathan maintains that while there is definite visibility into the next quarter, a lot also depends on how the holiday season pans out. "Retail is still a bit weak and I wouldn't rule out a bankruptcy of some company there," he ominously added.
TCS saw its digital revenue jump up 44.8 per cent year-on-year in the quarter ended June, and it currently accounts for around 25 per cent of revenue. But going ahead, while the company sees its digital business scaling up, it also expects growth to moderate. "We grew better than 30% last financial year. We are confident of doing 30% again in FY19. It will moderate as size increases," Gopinathan told the daily.
Gopinathan, who completed a year as TCS chief earlier this year, interestingly does not see battle lines drawn up as digital versus traditional. "While we break up service lines as digital and non-digital, contracts don't. They are a composite of the two. There is still legacy procurement happening. Digital comes in at a better price point but also has different challenges from a delivery perspective," he explained.
The future, he claims, is the machine-first delivery model. "Our approach to automation is traditional, it is not about what the machine can do for you, it is about what you can do with the machine," he explained, adding that this is TCS' approach of integrating automation into the basics of how enterprise technology is delivered. Obviously, any benefits from automation will only come about post integration. But TCS is not interested in "headline-grabbing stuff", say, a chess-playing machine. "That doesn't deliver value to an enterprise," claims Gopinathan. Instead, the value comes from more predictable operations. "Think about machine-first delivery as the next decade phenomenon, like global network delivery model was for the last two decades," he added.
Another sea change currently underway is how customer boundaries are getting erased. "Traditionally people thought of vertical integration, up and down the value chain. Now enterprises are collaborating more horizontally. It is an evolving trend. It has a [changing] business model and has a high technology leverage," said Gopinathan. The key is to open up as an enterprise for effective collaboration.