No client pullbacks due to recession fears: TCS

Speaking exclusively to ET, Samir Seksaria who was elevated to the role of chief financial officer of TCS in May 2021, said that the company is regularly polling customers to gauge their sentiments on the likelihood of a recession. “At an operating level we do not see any pull backs or panic situations yet… rather they are investing further in technology,” he added.

While customers are evaluating situations ranging from deep to shallow recession, TCS itself is enhancing its focus on the “twin engine strategy”, he stated. The twin-engine strategy, announced in 2021, integrates the cost and optimization policy with growth and transformation master plans.

While the company’s performance in the first quarter of fiscal 2023 beat revenue estimates, it disappointed the street on profit with 5.2% year-on-year growth, 240 basis points YoY margin dip and peak attrition numbers all tied to a massive uptick on employee spends, travel and subcontracting costs. There was almost 1.5% margin impact from annual increments rolled out during the quarter. However, even at 19.7% attrition the company is confident that the fresher talent pool created over the past few years will drive growth for customers, said Seksaria.

“Our focus, first of all, is to capture the demand because that’s something which is inherent but that doesn’t mean that we operate only on a unidirectional objective,” he stated.

This is also why the company will continue to focus on building its organic talent pool even if it leads to short term utilization dips because in the long term as the company continues to focus on delivering projects rather than just resource pools.

Discover the stories of your interest

“If you look at it from a cost management perspective, through the last year, we started hiring trainees at scale at a very early stage. More importantly, that also helps the cost per FTE (full time equivalent) parameter,” said Seksaria.

TCS concluded a Rs 18,000 crore share buyback in March 2022. However, due to existing government of India rules which bar more than one buyback in a year, the company does not expect another buyback before April 2023 even as it continues to follow its existing capital allocation strategy, said Seksaria.

“Last year, we had given back almost 100% of the free cash flow through dividends and buybacks. The board also keeps in mind that the various investors would have different preferences…So, it is unlikely that we will be doing a buyback this year based on the current laws,” he stated.

The company had reported two large deals during Q4 of the previous fiscal which had catapulted its deal TCV (total contract value) to a record $11.2 billion whereas it reported $8.2 billion TCV during the April-June quarter.

Seksaria is also not too worried about the lack of mega deals during the quarter as the company’s new model is focused on building long term relationships with clients which may not translate to TCVs immediately but have guaranteed potential to convert into horizon 2 and horizon 3 deals.

“The gestation period for large and mega deals to evolve and then be signed is usually higher.. Hence you see the lumpiness in reporting such deals…if someone’s done horizon 1 with us, it’s more likely that we’ll get horizon 2 and 3 as well (from the same client). So the roadmap and the blueprint is known, but that need not translate into TCV immediately because they might want to commit it in certain steps at a time,” said Seksaria.