Muted Discretionary Demand Responsible For Weak Quarter, New Deals Contribution Remains Intact: TCS Official

The COO noted that Q2 results were impacted as ‘clients are choosing to conserve cash given the economic climate', in turn impacting discretionary demand. 

On TCS' $1 billion deal with BSNL, Subramaniam said that the company took a strategic call on margins lower than the limit, but the decision taken by the firm was not a ‘loss-making one’.

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Dampened revenue growth can be attributed to the negative impact on discretionary demand due to economic headwinds, a senior official at India’s largest software company, TCS said, dismissing the impact of new deal on the revenue stating that the proportion of new deal wins into revenue remains intact. 

In a conversation with PTI, the IT giant’s chief operating officer, N Ganapathy Subramaniam, said, that the discretionary demand could contribute to nearly 30 per cent of incremental revenues in a quarter. He noted that the second quarter results of the firm were impacted as ‘clients are choosing to conserve cash given the economic climate and choosing to defer spends where they do not see immediate returns on investments’, in turn impacting discretionary demand. 

TCS’s COO, however, stated that the part of revenue the firm gets from new deals remained unaffected. The firm reported signings of more than $10 billion for three straight quarters, and the total contract value (TCV) to revenue conversion rate remained intact, the official noted. Talking about other factors that affected the revenue growth in the quarter, he said that cost optimisation and end of contracts proved to be a damper on revenue. 

Discretionary demand is basically a short-term consulting engagement which is completed by allocating a few resources, outsourcing work to subcontractors or by lateral hiring, the COO explained. He further noted that this provides an ‘extra’ to add to the overall revenue. Elaborating on an outlook for discretionary demand, Subramaniam added, “It is very difficult to have any prediction at present but added that it all depends on how the global economy shapes up. (even) economists are not able to say when this economy will bounce back. It is election year in the US, and election year in India. The UK will also probably go for an election. With all this, there is more that can change.”

Notably, the firm reported a revenue of Rs 59,692 crore in the September quarter in the current fiscal year, compared to Rs 59,381 crore reported in the preceding quarter. 

On moving to work from office mode, the COO said that the company recently onboarded 1.50 lakh people, who haven’t received any office experience ‘which helps drill the company's values and approaches into an employee’. 

“Many of these staffers hired in recent times will get elevated to a supervisory or a managerial post soon, and it is important to instill such aspects. Yes, we can do programming sitting at home, but programming is not everything. Business is a lot more than that. At some stage, you're not going to be a programmer. You are going to be something else,” the official stated. 

In response to whether the firm compromised on margins to secure the more than $1 billion deal from the state-run BSNL, Subramaniam said that TCS took a strategic call on margins lower than the limit, taking into consideration the factors that such type of deals include. The official clarified that the decision taken by the firm was not a ‘loss-making one’. “The company has worked on the BSNL deal for over two years and is confident of having mitigated all the risks associated with the paperwork and the processes, he said, adding that it is about the execution now,” he added.

The company’s COO stated that it has adopted a frugal engineering approach on the BSNL deal, as it is starting with no legacy systems and also integrated a lot of software on the hardware.