Technology outsourcing company Tata Consultancy Services (TCS) said digital revenues contributed 16.8 percent to its Q3 fiscal 2017 revenue, growing at 30.2 percent.
“To support and sustain our Digital business that is growing at 30 percent, we continue to build new capabilities in Digital technologies, empower employees to enhance agility in the workplace and invest more to develop IP-based platforms and products,” said TCS CEO N Chandrasekaran.
TCS has achieved sequential growth of 5.8 percent in Energy & Utilities, 2.6 percent in Hi-Tech, 2.1 percent in BFSI, 2.1 percent in Manufacturing, and 1.9 percent in Retail industries during the third quarter.
TCS said emerging markets like Latin America clocked growth of 12.5 percent and India achieved 10.3 percent sequential growth. TCS revenue from North America grew 2.2 percent sequentially and UK rose 1.7 percent sequentially.
TCS achieved 21 percent growth in Asset Leveraged Solutions, 9.5 percent increase in Infrastructure services and 3.1 percent growth in Engineering and Industrial Services – showing strength in growing segments like Platforms, Cloud and Internet of Things (IoT).
TCS has benefited from diminishing market uncertainty within the U.S., particularly among capital market clients as the company’s top line expanded 5.8 percent year-to-year to $4.4 billion.
Analyst comments
The technology outsourcing company continues to differentiate its geographic revenue mix, as emerging markets including India, Latin America, and Middle East & Africa each posted double-digit revenue growth during the quarter, expanding 11.1 percent, 10.9 percent and 20.3 percent, respectively.
Each of the aforementioned geographies outpaced TCS’ core markets in North America and the U.K., which grew 8.8 percent and fell 11.5 percent, respectively.
Contracts for TCS’ existing set of digital offerings continue to spearhead overall services growth, with $737 million in digital sales representing 16.8 percent of total revenue.
Client demand for machine learning and automation are driving adoption of TCS’ Ignio platform, evidenced by its contract to deploy the solution for a capital market client within the U.S. in the quarter.
“We expect TCS will continue to build out its digital portfolio, complementing its core offerings with industry-specific solutions that address clients’ pain points throughout the life of long-term outsourcing engagements,” said Ryan Blanchard, research analyst at TBR.
A key cog in TCS’ efforts to capitalize on the wave of digital transformation demand is expanding its digitally trained resource base. While academic partnerships help identify potential hiring targets, competition for such talent from competitors including IBM and Accenture limits TCS’ ability to lure top talent. Internal training initiatives help assuage the dearth of talent, as the company continues to train its existing employees around digital technologies and platforms.
TCS faces challenges in US
US President-elect Donald Trump may pose challenges to outsourcing firms that rely on H-1B visas to send low-cost contractors from India to deliver services to U.S.-based clients.
The president-elect and his proposed attorney general have expressed their desire to curtail the existing visa program to encourage job protection and creation in the U.S. Such changes would likely cause a significant hike in visa costs and fees as well as potentially decreasing the number of visas dispersed each year.
According to government data compiled by the Institute of Electrical and Electronics Engineers, TCS was awarded the highest volume of H-1B visas in 2015, securing 8,333 of the 85,000 visas distributed each year. Given TCS’ heavy visa usage, proposed changes to the existing program would have a drastic impact on labor arbitrage benefits and thus hinder its ability to fulfill a 26 percent to 28 percent target operating margin range.
TCS will be forced to slow its hiring pace in India and focus resource investments on extending its onshore footprint. The ongoing war for highly skilled talent in the U.S. could make recruitment challenging as U.S.-based companies including IBM, Microsoft and Google typically offer higher compensation packages.
As a result, the most efficient and potentially impactful avenue for expanding TCS’ onshore footprint would be via acquisition.
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