TCS eyeing several $100-million acquisitions in digital space

The country’s largest software exporter, TCS, is hunting for small acquisition targets in the digital space to beef up its technology stack as it bets big on a digital future.

“We are in the market looking at opportunities and if we see the right skillsets at the right price points, we will be open to it. It is highly unlikely to be much beyond $100 million because there are no targets in the billion dollar region in the digital space,” TCS CFO Rajesh Gopinathan, told BusinessLine .

Gopinathan added that the company is not looking at digital for margin improvements at the moment as it is in the investment phase.

“The reason we are investing in digital is because in future this will be the mainstream service, which will give us the margin protection and allow us to invest into the next, whatever is the one that’ll come. The growth into digital is not about margin expansion. For us, it’s an ongoing series of investments,” he said. The digital practice contributes to close to $2 billion to TCS’ annual revenue and is the fastest growing segment. It, however, faces tough competition from players like Accenture. TCS announced in July that it’ll train one lakh employees on digital platforms, of which 30,000 have already been trained. Gopinathan said beyond some small size acquisitions in the $100,000 range, TCS will look at in-house capacity building as a strategy for digital.

“In the technology hype cycle, digital is nearing the peak of its cycle. If you have a consulting-led business model, it is very important to capitalise on the growth phase of the hype cycle and your time to market is very low because that happens rapidly. So your capacity addition by nature has to be acquisitive. Because you need to rapidly add capacity to capture the growth side of it,” Gopinathan said.

The company said its neural automation platform Igneo, its biggest investment in the digital space so far, has garnered four clients in the second quarter with a strong deal pipeline.

However, its impact on internal cost cutting and TCS’ own hiring would take a while.

“There was a bit of a hype around automation earlier, about how it is going to come and kill everything. But it will take time because it requires actual implementation and integration. The product (Igneo) per se is mature in narrow areas. It will need to be implemented in live scenarios with strong client adoption. We are in an early stage of that adoption cycle. It’ll take some time for automation to have an impact on our own hiring,” he said.

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