It's all about being digital: TCS

India's largest IT services provider Tata Consultancy Services (TCS) has been saying that digital is default, but yesterday it told analysts that 52 per cent of its clients are engaged in digital technologies and a number of them have chosen TCS as a partner of choice. TCS also reiterated that the market for their services is still under-penetrated.

TCS management meets analysts before its fourth quarter results to give an update on its digital capabilities. Digital revenue for the company has already touched $2 billion for CY2015.

The company also for the first time, gave details of digital revenue in each of its large verticals. For instance, 24 per cent of revenues in media are derived from digital, 19 per cent in retail, 16 per cent in hi-tech and travel, 15 per cent in life sciences, and 12 per cent in BFS.

The company also stated that segments within digital that have been showing phenomenal growth rates (CQGR) include, analytics & insights (10 per cent), cloud (12 per cent) and mobility/channels (8 per cent).

"While there were no hints dropped about the strength of demand in the near term (Q4FY16) or over FY17, the company sounded very bullish about its prospects from a long-term perspective. This primarily stems from its belief that the IT services opportunity is very large and it has a miniscule market share in most geographies (2.8 per cent was the largest market share it had - in UK) and that it made all the right investments to address it," said Girish Pai and Shubham Gupta of Nirmal Bang in their report.

TCS management also stated that the company's market share is less than 3 per cent in IT services in every continent despite its $16.2 billion size and 16 per cent CAGR over the last five years. That leaves headroom for further growth, if it continues to invest towards staying relevant to customers as it has done thus far. TCS also stated that of the $16.2 billion, almost $4 billion came from new customers and $3 billion from new services, said an analyst who attended the meeting.

"The focus was completely on digital and the management reiterated that the company has invested ahead of time in the digital segment. They also said that the employee base has been trained to address the digital needs of customers but more importantly, they now need to co-innovate with customers," said an analyst on condition of anonymity.

Since April 2015, TCS has trained more than 1,11,000 associates (against its target of 1,00,000 associates) through TCS Digital Learning Program. Associates are trained on more than 400 tools and platforms for holistic development and equipping themselves with problem solving abilities.

TCS has also invested in creating next-gen delivery model that includes investments in Agile/DevOps, automation, RIO (Rigour in operation), digital, and security.

"The company has made investments across three types of products - 1) Technology products (Ignio), 2) Horizontal products and platforms, and 3) Vertical products and platforms. One of the products garnered $100mn in annual revenues, and some are at $10- 15 million in revenues," said the Nirmal Bang report.

This is not all. TCS is also tapping into the startup eco-system, the company is looking at more than 1,400 companies to collaborate with.

Over the past few quarters TCS results have disappointed the Street as it had faced issues in geographies like Japan, Latin America and verticals like telecom and insurance (Diligenta).

However, traditional business is still 85 per cent of the company's revenue. "Over the past five years, TCS has led the incremental revenues as well as operating profits not just domestically, but also in the global arena (compared to peers multiple times its size); and its market cap is second only to IBM. The growth outperformance to industry peers has waned, but it is invested nicely in building Digital capabilities to recoup the growth advantage. The higher base that TCS now operates at is a deterrent, however," said a report from Motilal Oswal.