Once we make a job offer, we honour it: TCS outgoing CEO & MD Gopinathan

The US has turned out to be surprising and hence difficult to call out for the short term, says Rajesh Gopinathan

For Rajesh Gopinathan, outgoing chief executive officer and managing director, TCS, Q4 FY23 was his last full quarter in the company. Gopinathan, while refraining from answering questions related to his resignation, says only after the new CEO takes over will he discuss anything else. In an interview with Shivani Shinde, he talks about the macro environment, getting to a normal cycle on issues related to people, and growth. Edited excerpts:

Q4FY23 was a huge surprise. What are clients saying and do you see this pain continuing?

We are not negative on the macro. We shared only what happened in the quarter and what caught us by surprise, and it turned out to be much sharper. We were expecting it to be up so that’s what we called out.

 From a macro point of view, we’re positive on the UK, Europe is incrementally positive, and the US has turned out to be surprising and hence difficult to call out for the short term. But we believe that the US companies, especially our clients, are in very good shape.

We are not overly negative about the US because the underlying strength is solid. Uncertainty is building up due to the change in the monetary policy stance and its ripple effects. But then we are not economists. We looked at it more from a fundamental basis and felt there should be caution going into the end of the year and it should bounce back at the beginning of the year. That has not happened.

Increasingly there is a mismatch between the TCV (total contract value) one signs and its transmission into growth. Can you explain?

TCV does not convert into revenue in the quarter in which a deal is signed. That’s why I’m saying we are not negative on the overall demand scenario or on the macro scenario. We are saying the near-term is difficult to call, especially in the US, given that what is happening is not structural. This is more a change that’s coming from an environmental perspective.

Is this only limited to BFSI (banking, financial services, and insurance) or across sectors?

It is certainly across sectors. The immediate impact was on the BFS segment. We had stated that retail was soft last quarter. Holiday season sales were high, but a combination of inflation and the shift towards value products impacted their top line and margins. Retailers were hence turning cautious. Auto has been cautious, and the demand in this sector is sensitive to rate cycles. But that industry has tailwinds too.

It’s more a balancing issue. What we see now is more of a sentiment unless there is a major breakdown.

How will the banking turmoil impact TCS’ deals that have been signed?

We have not had a major negative impact from this. The affected banks’ near-term expenditure will go down while they are integrating. The future business visibility becomes more difficult. But mostly what you see in these scenarios is that we are net gainers with a bit of a lag.

Once the dust settles, there is more systematic decision making. This time too I don’t see any reason why that should not be the case here. We have not taken any write-offs, and our receivables are safe.

As they go through the synergies and cut costs, that is net business for us. We just have to wait for that cycle to start keeping it.

Last quarter you had said when it came to cloud momentum, it was all about execution. Has that too been impacted due to macro issues?

That comment holds good and that’s almost non-discretionary because they have signed these contracts with hyperscalers (large cloud service providers, such as Google and Amazon, that can provide services at enterprise scale) to execute on that business case. They need to do some heavy lifting, and make sure that they migrate to cloud the right way.

Incremental sales at the hyperscaler have been coming down but that is because cloud projects are entering that heavy lift of execution unless they were to cancel the other subscription contract, which is unlikely.

The cloud journey already had lost the excitement and froth on it, and had died down almost two to three quarters back. So they were not signing up to new things as they need to now execute and make it work. That cycle of execution focus is what we spoke about and it is now playing out. This is necessary because unless they do that, the whole premise of the shift will collapse.

How does FY24 look like?

It varies from market to market. Many fears of the energy crisis and other issues have gone. If you look at the Q4 TCV, the number of deals in the $50-million category from Europe is higher than what it was in the last three quarters.

For the US we do not want tosay anything now. The only thing I can say is that there are no structural challenges.

TCS attrition, at 20 per cent, is still high for the company’s comfort level. How do you see it for FY24? Are there any delays in taking in people?

Attrition on a quarterly annualised basis is now down to 16 per cent. On the employee side, we had seen what was happening in the industry. We over-invested in FY22. In FY23 we leveraged that. We had a net edition of about 110,000 in FY22 and 22,000 in FY23. Once we make an offer to a person we will honour it. Even during the pandemic we did it. We think it’s our responsibility to make sure that we manage the uncertainty.