InvestorQ : Is it true that the US markets have done better for TCS than the European markets?
sara Kunju made post

Is it true that the US markets have done better for TCS than the European markets?

Mary Joseph answered.
1 month ago

For the Q1FY23 quarter, TCS did witness nearly 250bps narrowing of the operating margins to the 22% levels. This was on the back of higher manpower costs, travel costs and attrition expenses in the quarter. Interestingly, the rate of attrition touched a high of 19.7% in the quarter. The other big challenge was that clients in Europe were getting more cautious on tech spending due to fears that the Russia Ukraine war could prolong and could leave most of the European economies debilitated.

That has led to TCS shifting the focus of its business from Europe to the US for FY23. Now, for TCS, the Europe business is not small as it accounts for 30% of its total revenues, the highest among the large IT companies. However, TCS now expects the US markets to outperform on the top line and hence is shifting greater focus to the US market. The US is also facing recession risks with 2 consecutive quarters of negative growth in GDP. However, tech spending in the US is likely to remain more stable compared to Europe.

It is not just about Europe contributing over 30% of revenues for TCS. For the Q1FY23 period, the TCS UK business showed negative de-growth of -3.3% while the revenues from Continental Europe business was also lower by -0.7%. Here were are talking about the sequential de-growth. However it must be noted that on a yoy basis, the revenue growth from both the UK and continental Europe business was above 12%. This would mean that, for TCS, the second half of FY23 could be slower than the first half.

Here is why TCS is preferring the US market over the EU markets for FY23. Europe is more cautious on tech spends as they expect the region to slip into a much deeper recession due to the ongoing conflict between Russia and Ukraine and its impact on energy. There is a fear that Europe may run out of fuel and gas soon. IN the US, the risk of fall in tech spending is only in the event of a deep recession. In the US, any recession is likely to be shallow and unlikely to impact tech spending meaningfully, although Rajesh Gopinathan is also wary.