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Rajesh Gopinathan, chief financial officer of Tata Consultancy Services Ltd (TCS), is hoping the current weakness in the rupee will allow the country’s largest software exporter to be a bit “adventurous” in deal making. The company had in the past also used gains from weakening rupee to win new deals.
“A depreciating rupee allows us to be a bit adventurous in our deal-making. That means our ability to take on longer gestation deals and long cycle time deals increases. But I also want to be cautious as easy money leads to expenses creeping up,” Gopinathan told Business Standard.
India’s currency touched a record low of 61.21 on July 8 against the dollar, before rebounding, as the Reserve Bank of India announced measures to curb speculation and boost returns on local-currency assets.
Asked whether the move would put the company at risk amid currency volatility, Gopinathan said: “When I say adventurous deals, it means the margin profile of the deal is not too bad, but it has an upfront dilutive nature to it. So for some time, we may have to bare with the risk, but if the rupee goes up we will not do many such deals. We have to look at deals pragmatically.”
He further said this strategy was good for the company as it would allow it to explore and enter newer geographies and verticals. “As an industry, we are nowhere near to saturation. Rather, it’s early phase of consolidation. We still have markets to penetrate such as Japan and China, or even verticals. All of them are good candidates. As a company, we need to invest in these segments when we have the chance. Does that impose short-term pressure? Yes, it will.”
For the quarter ended June, TCS reported an earnings before interest and taxes margin of 27 per cent (an increase by 50 basis points). The company reported a 15.5 per cent rise in net profit over a year-ago at Rs 3,831 crore during the quarter.
Gopinathan is confident that in the medium-term, the company will be able to maintain its high margin focus, provided there is no major disruption in the industry.
"We are not into the commoditised business. Your margin gain come from either pricing or execution premium. We will always command a narrow price premium, because clients respect that. But bulk of margin differentiation comes from better execution and that is not easy to replicate,” he said. “It comes from a better service portfolio, customer mix, fixed-price project among others. Hence, I am saying for the medium term, till any major disruption doesn't come, we will be able to defend a higher margin."
Gopinathan, though, did agree that the US Immigration Bill, if accepted in its current form, would be a major disruption for the industry.
THE RUPEE LEVER
“A depreciating rupee allows us to be a bit adventurous in our deal-making. That means our ability to take on longer gestation deals and long cycle time deals increases. But I also want to be cautious as easy money leads to expenses creeping up,” Gopinathan told Business Standard.
India’s currency touched a record low of 61.21 on July 8 against the dollar, before rebounding, as the Reserve Bank of India announced measures to curb speculation and boost returns on local-currency assets.
Asked whether the move would put the company at risk amid currency volatility, Gopinathan said: “When I say adventurous deals, it means the margin profile of the deal is not too bad, but it has an upfront dilutive nature to it. So for some time, we may have to bare with the risk, but if the rupee goes up we will not do many such deals. We have to look at deals pragmatically.”
He further said this strategy was good for the company as it would allow it to explore and enter newer geographies and verticals. “As an industry, we are nowhere near to saturation. Rather, it’s early phase of consolidation. We still have markets to penetrate such as Japan and China, or even verticals. All of them are good candidates. As a company, we need to invest in these segments when we have the chance. Does that impose short-term pressure? Yes, it will.”
For the quarter ended June, TCS reported an earnings before interest and taxes margin of 27 per cent (an increase by 50 basis points). The company reported a 15.5 per cent rise in net profit over a year-ago at Rs 3,831 crore during the quarter.
Gopinathan is confident that in the medium-term, the company will be able to maintain its high margin focus, provided there is no major disruption in the industry.
"We are not into the commoditised business. Your margin gain come from either pricing or execution premium. We will always command a narrow price premium, because clients respect that. But bulk of margin differentiation comes from better execution and that is not easy to replicate,” he said. “It comes from a better service portfolio, customer mix, fixed-price project among others. Hence, I am saying for the medium term, till any major disruption doesn't come, we will be able to defend a higher margin."
Gopinathan, though, did agree that the US Immigration Bill, if accepted in its current form, would be a major disruption for the industry.
THE RUPEE LEVER
- Ability to take on longer-gestation deals increases if the rupee weakens against the dollar
- TCS onfident in the medium term the company will maintain its high margins, provided there is no major disruption
- The US immigration Bill, if accepted in its current form, could be a major disruption
