TCS CEO K. Krithivasan Discusses Company's Future Amid AI Advancements and Market Challenges

TCS boss Krithivasan: Unafraid of GenAI, unwilling to say the worst is past

New Delhi: Tata Consultancy Services Ltd (TCS) is not confident that the worst of the slowdown is past, chief executive officer K. Krithivasan said, as India's largest information technology services company tries to determine client spending in its biggest markets -- the US, Western Europe and the UK. In a wide-ranging interview on Friday, Krithivasan also dismissed fears about Generative AI, expressed confidence that technology will create more jobs, and stressed that TCS wants to bring differentiation to clients rather than ride hype cycles. "We don't give guidance. We have a good order book ($42.7 billion). And that is why we will do better in FY25 than in FY24. But we are cautious because we continue to see uncertainty in our markets," Krithivasan said. "Clients are reprioritizing programmes and calibrating at short notice. Taking all this, it would not be appropriate on our part to say that the worst is behind us. I don't think we are in that situation. Once we feel that we have that confidence, we will do so. But at this time, we do not have that comfort or confidence to say that the worst is behind us." Krithivasan's comments came after the Mumbai-headquartered company reported a 1.93% sequential dollar revenue growth in the April-June period on Thursday, crossing analysts' expectations. Hearteningly, headcount rose by 5,452 from the preceding quarter, following a sequential drop in workforce in each of the four quarters last year. All this prompted a scramble for TCS shares, which ended up nearly 7% on Friday. TCS ended FY24 with revenue of $29.1 billion, marking a 4.1% growth, the second-slowest full-year growth since it went public in August 2004. Its slowest growth was 0.7% in FY21, a year when the covid-19 pandemic upended businesses globally. At the heart of the slow growth witnessed by the country's $254 billion IT services industry is the conflict in the Middle East and Ukraine, and the uncertainty about whether central banks will agree to cut borrowing rates. All of this has made many of the Fortune 500 companies hold back from spending more on technology. "We note that TCS management stated that demand remains muted and has not improved thus far through CY24, and that client conversations remain the same. The company indicated it is too early to call an improved environment though reiterated the view that FY25 growth should be better than FY24, which is supported by sequential growth this quarter," Keith Bachman, an analyst with BMO Capital Markets, wrote in a note dated 11 July. "Hence, though we think IT services estimates are generally bottoming (not going lower), we do not yet have enough conviction that CY25 growth will improve, which would enable us to move to a more positive stance on the sector". Krithivasan said he was pleased with the company's all-around growth. However, analysts at Kotak Securities estimate that about $70 million of the incremental business in the first quarter came from the BSNL contract. TCS had won a mega deal (valued at more than $1 billion) from the state telecom firm in the summer of last year). This means 49.2% of the $142 million in sequential incremental revenue added by TCS in the June quarter came from only the BSNL contract. Another worry is the rise of GenAI: Since the debut of ChatGPT in November 2022, doomsayers have argued that Generative AI will ring a death knell for the industry as it makes much of the work redundant. "As Roy Amara mentioned, we tend to overestimate the effect of a technology in the short run and underestimate the impact in the long run. Because of this, we typically go through the hype cycle. ChatGPT created a lot of early interest. But people are slowly realizing that it is most useful for a class of problems. People are realizing that it will not take away all the jobs -- Humans would be required," said Krithivasan. Amara was an influential American scientist and futurist who worked at the Stanford Research Institute. "At the same time, we realize that unlike some of the technologies in the past like Blockchain, GenAI has a much larger impact. We believe many areas (In the IT services space) will gradually change. 30-35 years ago, when I started as a young engineer, almost all of the coding was in the mainframe. Today, 10% is in mainframe while 90% is in new technologies. Even the 10% coding we do in the mainframe differs from what we used to 30 years ago. Now, every time you code, you get help from IDEs (integrated development environment or IDE is a software application that helps programmers develop software code efficiently). Ten years from now, the way we do coding now will be different. So, the question is, if we have 1,000 people now, will we have fewer people because of the rise of these traditional GenAI technologies? Our belief is not so, and we will have more people. This is because technology will play a greater role in the creation of more products and services." Last month, Accenture Plc, the world's largest technology services firm, reported winning $2 billion in GenAI deals for the first nine months of the company's September-August fiscal year. Accenture's early success in GenAI contrasts with homegrown technology services majors such as TCS, Infosys Ltd and HCL Technologies Ltd, which are still navigating their AI strategies and none of them are quantifying the business from the GenAI or AI tools. "It is not correct to say TCS is a laggard. More than reporting pure-play AI revenue, the important thing is to see how we are helping or bringing differentiation for our clients. We are leveraging AI in almost all areas of our work, and that, to us, is the key. Going forward, AI technologies will be deeply embedded in almost everything we do. So, we should resist riding on a particular hype cycle and focus on how we can help our clients," said Krithivasan.

India can be third pillar of growth with US, UK: TCS CEO K Krithivasan

Tata Consultancy Services CEO emphasizes the importance of emerging markets like India for future growth. Discusses revenue trends, technology spends post-US elections, and interest rate cuts. Highlights deepening engagement with Tata Group firms and employee work from office policies.Emerging markets like India will be very important for the future growth of Tata Consultancy Services and not operating in these markets will be a lost opportunity, chief executive officer K Krithivasan said. India's largest software exporter, which reported better than expected revenue growth in the first quarter of this fiscal, is expecting greater clarity on technology spends once the US completes its presidential elections in November and the much-anticipated interest rate cuts by its Federal Reserve kicks in by year end. In an interview with Sameer Ranjan Bakshi and Surabhi Agarwal, the 59-year-old CEO pointed to his company's deepening engagement with other Tata Group firms. The company recently inked a $ 1 billion partnership with Tata subsidiary - JLR (Jaguar Land Rover). Edited excerpts There has been criticism over the BSNL deal having contributed much of the incremental growth for TCS in the just concluded quarter? I don't know what is wrong in doing priced programs in India ( where) we are also delivering margins. India is a good market, and we must be present here as it is one of the few emerging markets that is growing. Future growth will come from emerging markets and if companies like ours don't invest ( here) it will be a huge, missed opportunity. How do you see the macro environment and what does FY 25 look like? Things have not changed much but we believe this year is better than last year. But if you look (specifically) at the US, people are expecting (change) after the Federal Reserve announcement in terms of jobs and some cuts in interest rates. Similarly, once the Presidential elections are complete in November it will give them a direction on which way the overall economy will go. I feel that the amount of certainty once the elections are over is the most important thing. Once we know what they're likely to get into, then the whole thing gets recalibrated, and the investments start (unlike the current situation which is that they don't know what would happen). In the UK, we've been doing well. And now the elections are (over) I expect, there is a certain direction available to them. But elections are due in November. That is a long wait, should we brace for more uncertainty over the next two quarters? I see maybe the next two quarters we need to wait is my guess. Unless the interest rate gets reduced before that (some clarity will emerge in next two quarters). The contribution from North America to TCS's overall revenue has dropped below 50% for the first time in three years. Even India revenue contribution is at a multi-year high. Will this continue to be the trend? We would like that. Broadly, we've been using North America as one layer of growth. And secondly, there has always been Western Europe and the UK. We want to have a credible third pillar of growth coming from emerging markets. So, we are very focused on these emerging markets and investing a lot (there). Are Generative AI projects more on site or are they being offshored, because of the data intensity involved? It's a mix. Our R&I (research and innovation) teams are primarily based out of India. But we do have a significant portion of our team onsite also. Generative AI is more of a summarizing technology as it stands today while traditional AI is predictive. Your peers are on an acquisition spree, there is a rush for ER&D semiconductor companies and what are your plans? My guess is that there is an overall rush towards semiconductor companies because everyone wants to ride on Gen AI and interest in India. Our approach has been to create synergy, if I can top off what we can acquire and provide a growth multiplier, we will do it. If not, we will not do it. It's easy to acquire but if you're not able to execute on synergy benefits, you will be staring at more inefficiencies. So, we don't want (that), our benchmark on acquisitions is quite high. How significant are Tata Group companies for the growth of TCS? Tata group is very critical for us. We have to fight to win programmes with group companies because each one of them is a listed company, they deal with us at arm's length. But we know what the group is planning to invest so we prepare ourselves, but we fight with everybody to win those deals. But it's very important. The group is also investing globally as well. So, we want to increase and enhance our presence through collaboration. You still have 30% of TCS employees who are yet to work from the office. So are you being liberal in your mandate of work from office? There are people with genuine reasons to work from home, people holding out or not coming at all is a smaller percentage. We are rolling out the consequence process. It will be an incentive plus a disincentive mechanism. We are close to 80% of the people coming into the office. Before the pandemic also, about 80-85% people came to office. If you go into any of our Centres, the activity is like pre covid level.