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Tata Consultancy Services (TCS) has yet again managed to deliver stellar performance for the first quarter of FY14. The company has been improving on its performance quarter-after-quarter and setting up new benchmarks for peers. N Chandrasekaran, CEO and MD, TCS in an interview with Shivani Shinde Nadhe talks about the future course. Edited excerpts:
A volume growth of 6%, maintaining margins at a higher level despite wage hikes, growth across sectors and geography’s, TCS is having a great run. What could possibly spoil this party?
Our business is about demand and execution. We have to capture the demand and also flawlessly execute to get best results. It is not easy in a large set up like this, even though I have a smaller and nimbler unit’s. Second, is the regulatory environment. We need to watch out and adapt quickly to whatever changes come our way, especially, in the medium term. And third, I also think that we need to scale the non-linear business in such a way that we can bring in lot more sustainability in the medium to long-term .
But in the near term of course it is about managing the demand and execution aspect and being agile on the regulatory front.
Has the immigration bill in any way impacted the structure of the deals in terms of the time period or the size?
No.
What is the perception of client on the immigration bill?
Clients understand that it is something that needs to be tackled. We are working with them, wherever there is a need to work with them. But we also need clarity on each clause that has been suggested. We need to wait for the provisions in the final bill. We have all the scenarios worked up, but no point in talking about it now.
You have to understand that the immigration bill is a huge piece of legislation and it has to go through. The US has issues that they need to solve. What we are concerned is the provision for high skill visa. On this yes there are provisions which are challenging for us. And there are provision that promote local jobs, give more H1 visas etc. which are positive. The best way to operate, hence, for us is to work with other companies and meet as many people as possible and explain to them the consequences this bill will have. The issue is not that it will increase cost or affect the business model. The issue is at the end of the day we need enough people to service the end client.
Several analyst have been saying that Indian IT players need to change the business model and have higher presence onsite, like their MNC competitors. Do you think this shift will not happen?
We have substantial local presence. Nobody has delivery centres in the US. You need to have enough people with subject matter expertise to service the client. Even for US clients we are doing significant projects for their international business. For this we may not be in India or US but have presence in Latin America or China. We have hired 1,800 people in US last year. We would be one of the highest recruiters in the US. This year too we will be hiring lot more than that. We do have to find a solution to the business model. Whatever be the provisions we need to comply with it, we need to create local jobs. We anyways believe that every market on which we operate we need to create local job opportunities.
Europe did extremely well this quarter, what is the headroom for growth? And how does the Alti acquisition fit into this?
Lot of European companies are looking for transformational work that removes thier cost structure and create future IT systems. Continental Europe is certainly opening up and the deal pipeline is very good. I am sure Europe will do better over the next few quarters.
At Alti, we have a very credible client list, and have over 1,000 people. We are done with a lot of integration. We have clients from 4-5 verticals like banking, government, retail etc. Our unit heads representing these units have already spent time with Alti team and interacted with clients. We are trying to see what TCS can offer to these clients and how will we take it to clients with Alti’s local knowledge and manpower. Alti is about euro 130 million in revenue and has lower single digit margins. We should ideally improve both the parameters in a years’ time.
The only concern post the results was the lower hiring numbers. Is it time for us to relook at TCS’ hiring strategy since you said automation has been increasing?
Yes, the hiring strategy will change overtime. But we do have a large scale and hence utilization targets will go up. Second, as we increase non-linear contribution, revenue per person will improve and that will mean that the hiring numbers will change. Third, like non-linear revenue and platform we will higher skill based. But at present we are still hiring in large numbers. Even If we improve utilization by 2%, it means addition of 5,000-6,000 people. So we will continue to need large chunk of employees.
A volume growth of 6%, maintaining margins at a higher level despite wage hikes, growth across sectors and geography’s, TCS is having a great run. What could possibly spoil this party?
Our business is about demand and execution. We have to capture the demand and also flawlessly execute to get best results. It is not easy in a large set up like this, even though I have a smaller and nimbler unit’s. Second, is the regulatory environment. We need to watch out and adapt quickly to whatever changes come our way, especially, in the medium term. And third, I also think that we need to scale the non-linear business in such a way that we can bring in lot more sustainability in the medium to long-term .
But in the near term of course it is about managing the demand and execution aspect and being agile on the regulatory front.
Has the immigration bill in any way impacted the structure of the deals in terms of the time period or the size?
No.
What is the perception of client on the immigration bill?
Clients understand that it is something that needs to be tackled. We are working with them, wherever there is a need to work with them. But we also need clarity on each clause that has been suggested. We need to wait for the provisions in the final bill. We have all the scenarios worked up, but no point in talking about it now.
You have to understand that the immigration bill is a huge piece of legislation and it has to go through. The US has issues that they need to solve. What we are concerned is the provision for high skill visa. On this yes there are provisions which are challenging for us. And there are provision that promote local jobs, give more H1 visas etc. which are positive. The best way to operate, hence, for us is to work with other companies and meet as many people as possible and explain to them the consequences this bill will have. The issue is not that it will increase cost or affect the business model. The issue is at the end of the day we need enough people to service the end client.
Several analyst have been saying that Indian IT players need to change the business model and have higher presence onsite, like their MNC competitors. Do you think this shift will not happen?
We have substantial local presence. Nobody has delivery centres in the US. You need to have enough people with subject matter expertise to service the client. Even for US clients we are doing significant projects for their international business. For this we may not be in India or US but have presence in Latin America or China. We have hired 1,800 people in US last year. We would be one of the highest recruiters in the US. This year too we will be hiring lot more than that. We do have to find a solution to the business model. Whatever be the provisions we need to comply with it, we need to create local jobs. We anyways believe that every market on which we operate we need to create local job opportunities.
Europe did extremely well this quarter, what is the headroom for growth? And how does the Alti acquisition fit into this?
Lot of European companies are looking for transformational work that removes thier cost structure and create future IT systems. Continental Europe is certainly opening up and the deal pipeline is very good. I am sure Europe will do better over the next few quarters.
At Alti, we have a very credible client list, and have over 1,000 people. We are done with a lot of integration. We have clients from 4-5 verticals like banking, government, retail etc. Our unit heads representing these units have already spent time with Alti team and interacted with clients. We are trying to see what TCS can offer to these clients and how will we take it to clients with Alti’s local knowledge and manpower. Alti is about euro 130 million in revenue and has lower single digit margins. We should ideally improve both the parameters in a years’ time.
The only concern post the results was the lower hiring numbers. Is it time for us to relook at TCS’ hiring strategy since you said automation has been increasing?
Yes, the hiring strategy will change overtime. But we do have a large scale and hence utilization targets will go up. Second, as we increase non-linear contribution, revenue per person will improve and that will mean that the hiring numbers will change. Third, like non-linear revenue and platform we will higher skill based. But at present we are still hiring in large numbers. Even If we improve utilization by 2%, it means addition of 5,000-6,000 people. So we will continue to need large chunk of employees.
