TCS will have to run harder to stay ahead of the pack

Over the past few years, Tata Consultancy Services (TCS) has increasingly turned out to be the bellwether for the Indian IT industry, a position long held by Infosys.

On Thursday, when the company reported its Q4 results for FY15, the de-growth in dollar revenue of 0.8 per cent on a sequential basis was a disappointment. It did surprise a little bit on the net income side positively, if one did not factor in the cost of a onetime bonus of $423 million (or Rs 2,628 crore). Overall, the company ended FY 2015 with a growth of 15 per cent, just meeting the upper end of Nasscom's estimate of 13-15 per cent growth for the entire sector.

To be fair, some of it is down to just the law of big numbers catching up. At $15.45 billion revenue, just to keep the previous year's growth rate, it will have to add the equivalent of four MindTrees or a couple of iGates this year. While some of the issues - like cross-currency headwinds - is a problem affecting the sector, the fact that it had to give average hikes of around 8 per cent - compared to the average 6 per cent hike that Infosys gave - is an indication of the kind of people-related challenges it is facing.

While running an organisation with 319,656 people is never easy, two challenges confront the company. One is the attrition rate at 14.9 per cent and the second is the net addition of a mere 1,031 employees in the previous quarter, indicating a degree of weakness that belies strong commentary from the management.

Ajoy Mukherjee, the HR head of the company, sounded nonchalant on the attrition rate, but the bonus and the relatively higher hike provided is an indication of the worry in the company. Also the company indicated that it is likely to recruit around 60,000 people including around 35,000 from campus.

Even taking into account that the fourth quarter is traditionally a soft one for the company, TCS will have to tackle weaknesses in the telecom, energy and utilities as well as travel & hospitality domains. Revenue decline from Europe excluding the UK is also a cause for concern. While TCS saw a decline in the global consulting service line, Accenture, which released its strong numbers a few weeks ago, was on growth in the same consulting business.

The CEO and MD of TCS, N. Chandrasekaran is confident of beating industry numbers in FY16 too, which Nasscom is projecting to be at 12-14 per cent. Sanchit Vir Gogia, CEO of Greyhound Research in post results commentary said "The very fact that TCS is the only company which is openly talking about their revenues generated through Cloud is a positive sentiment for the company as well as the industry and showcases their strong foot hold in the space. However, we are not very sure about the performance of TCS iON and if it will be able to give strong competition to companies like Oracle, SAP and Ramco."

TCS's Indian peers will release their numbers over the next few weeks. While the company has had a dream run over the past few years backed by flawless execution, it is increasingly clear that TCS will have to run harder if it wants to stay ahead of the pack.

Over to Chandra and team now.