TCS Share Price: What company is doing to power growth – highlights by Kotak Institutional Equities

TCS organized a virtual interaction with its leadership team for analysts. TCS indicated that even early cloud adopters and clients who have signed large scale cloud contracts have shifted only 30-50% workloads to the cloud with majority of it being lift and shift type migrations. In many cases transformation has not happened or only very little of transformation has happened. Opportunity is across industries. Hence there is huge opportunity in the migration activity into the next year and beyond. Clients’ contractual commitments with hyperscalers are a leading indicator of the opportunity.

The next opportunity following migration is building upon native capabilities of the cloud platforms. TCS indicated that currently analytics based native capabilities are being utilized especially by retailers who were early movers in deploying such capabilities. However other areas such as inbuilt integration capabilities have not been exploited in a big way by traditional companies.

The key takeaways are as follows:

(1) Cloud transformation is a multiyear exercise akin to ERP adoption and offers strong medium-to-long term opportunity,
(2) Growth opportunities driven by Covid will be meaningful but lower than that post GFC,
(3) TCS will be disciplined in undertaking lift-shift-transform deals
(4) A hybrid working model is the way forward

TCS indicated that cloud transformation is a multi-year opportunity.

The CEO indicated three phases of the cloud transformation journey of clients which are as follows-:

Infrastructure migration to the cloud business:

This involves lift, shift and transformation of existing infrastructure, data and applications to the cloud driven by benefits such as ability to scale infrastructure on demand, cost efficiencies and better security. This is a huge opportunity for the industry since cloud penetrations levels are low.

Another opportunity is from architecting enterprise to enterprise collaboration and new business models. Such collaboration and new models will be enabled by cloud technologies. Several collaborative business models will come into play in the near-term which can form an early template for other industries to follow. TCS can partner with clients and capture demand in all phases.

Covid has accelerated the cloud transformation journey of enterprises. Covid has made cloud adoption compulsory for organizations. The business case for cloud has changed from cost focus in the past. Hurdles such as security related concerns have been overcome in the past few months. Focus of clients is now on cloud migration and transformation. The pandemic has heightened clients’ need for high quality and resilient services provided by companies such as TCS.