TCS’ growth shines bright in Indian markets but loses its shine in global markets

The IT giant great recorded a phenomenal recorded a strong performance in India but faltered overseas. While Indian market grew by 14.1% QoQ, it declined by 2% in Continental Europe. While the dollar revenue grew 15.5% YoY and 4% QoQ on CC basis the INR revenue grew by 16.8% YoY and 3.2% QoQ. The key growth drivers were increased outsourcing, investment in building a digital core and growth & transformation agendas of clients. The industry level inflationary headwinds drove the EBIT margins to 25.6% (up by 10bps QoQ and down by 60bps YoY). Net Margin stood at 20.5% (up by 70bps QoQ and down by 50bps YoY). Negative currency impact and increase in sub-contractor expenses were two of the reasons that strained the margins.

All TCS verticals witnessed a double-digit YoY growth CC basis with Manufacturing leading the pack with 21.7% growth and Technology & Services showing the lowest numbers (14.8%). Manufacturing ran the show for TCS as there was a sharp growth due to increasing demand within the auto industry, specifically the EV segment. BFSI was a stellar performing vertical achieving quarterly run-rate of US $2bn alone by gaining momentum in winning large insurance deals. BFSI’s such outstanding performance makes TCS one of the largest providers of IT Consulting services & solutions in the BFSI industry globally.

Geographically, TCS gained maximum revenue in North American by 17.4% YoY CC basis across all the markets and while India led the show with revenue growth of 20.1% YoY CC basis in the regional markets.

The growth in North America was due to strong demand in BFSI, which is likely to continue. The growth in India was driven by demand in the insurance sector, banks in need of digital transformation, enhancement of payment infrastructure by the RBI and newly launched services to help market infrastructure institutions such as exchanges and depositories. Europe showed a muted growth as a large project came to completion, customers offshored more due to supply-side challenges that led to value compression, some issues surrounding demand and continent is expected to get better post vaccination drives. Q2FY22 witnessed various sizes of deals. Vertical wise, BFSI bagged deals worth US $2.1bn, Retail bagged deals worth US$1.2bn. Country wise, North America won deals worth US $3.9Bn

With their expertise in aviation industry over the years and their belief in the resilient behavior of the industry, TCS anticipates another 12-18 months for the industry return to normalcy. Hence, they believe to revive Air India, the perfect time would be now. With this vision, they successfully bought out the airline for US $2.4bn.

TCS’ Ignio, its cognitive software, also showed great performance over the quarter signing up 22 new customers and 8 go-lives. Ignio has helped one of the largest mid-western consumer banks of USA in reducing downtime of critical applications besides significantly improving operational resilience.

Along with this, TCS has successfully gained deals under their Horizon 1 initiative, many of which have turned to Horizon 2 and/or 3. The company has applied for 6,169 patents, including 180 applied during 2QFY22 and has been granted 2,100 patents

TCS seems to feel the heat of talent acquisition as it has the lowest LTM attrition rate (11.9%) in the industry even though it has increased compared to its previous quarters. Surely, the company will catch up on this front as Employees logged over 14.3mn learning hours in 2QFY22, 496,000 employees have been trained in agile methods, over 417,000 employees have been trained in multiple new technologies and would hire a total of ~78,000 freshers in FY22. By the year-end, TCS plans to resume 80-85% working from office with hybrid model and desired level of flexibility.

TCS continues to sound confident, not only about FY22 but also about the medium term with great performance across markets.