Tata Consultancy Services’ (TCS) second quarter numbers not only surpassed market expectations but also achieved several milestones. N Chandrasekaran, managing director & CEO, and S Mahalingam, chief financial officer, spoke to Shivani Shinde on how they intend to sustain this growth in an uncertain environment. Edited excerpts:
There is a feeling among analysts that the growth was due to pent-up demand and hence could be one-off. Is double-digit growth back?
Chandrasekaran: The demand environment is not one-off. We have delivered a well-rounded growth, across sectors and geographies. I think going ahead, too, growth will be rounded. This includes Europe, which has been slow. From a demand point of view the uptick is robust. We have seen significant deal flows and deal closures across segments. Having said this, the macro environment remains uncertain and we will be watchful.
Mahalingam: If you look at the run-rate we delivered at the end of fiscal 2010 and then the two quarters into FY11, you can see we have improved at a good level. This would not have been possible if the trend in the market was not good. Besides, clients are sure about their IT spends much more now than compared to 2008 and 2009. Some of the early indication we are seeing is that the growth momentum will continue into next year, until something drastic happens.
What will be the focus and what kind of budget spends do you foresee?
Chandrasekaran: It’s too early but from the early discussion we have had, there is going to be an increase in budgets. We are going to do simple things and do it right. For instance, we want to be more agile, we are going to be more responsive and customer-oriented. We want to be much more employee-focused. These are clearly some focus areas for us.
How much of the margin improvement we have seen this quarter is sustainable?
Mahalingam: The biggest challenge is currency. We do not have control on that. If the rupee remains at 44-levels, then it is a concern. You also have to take into account that this time we have delivered 28 per cent operating margins after giving additional variable allowances.
From the beginning of this fiscal, we have said that we will maintain margins in the 27 per cent range. Even if we have only reasonable growth and even in a constrained exchange environment, we should not have a huge dip in margin. We are comfortable with the rupee at 45 but if it goes down, then we have some challenges.
What are the key concern areas?
Chandrasekaran: Currency, protectionist sentiment and attrition. Currency is out of my control. On attrition, we have to continue to engage. Our managers across the board will have to spend more time with employees. It is about creating an environment where people want to belong on a long-term basis. There will always be some people who do not want to be part of the company, and we are fine with it. But by and large, for those who want to be with TCS, we need to keep on enriching that environment.
This quarter has been about all-round growth. How have BPO and the new initiatives fared?
Chandrasekaran: We have a double-digit growth in BPO (business process outsourcing) as well. There is lot more work to be done. I think we can further scale platform-based BPO on some of our vertical BPO offerings. That has not happened. We need to do more work in Infrastructure services segment. So, on an overall basis we are doing well, but still not to the fullest.
On the new initiatives, all I can say is that they are still small. I want them to make a significant impact. While BaNCS (banking, capital markets and insurance) as a product segment has done well, the others need to catch up. By the end of next fiscal, I want all these new initiatives to start generating revenue.
You completed a year at the helm of the company. How has it been?
Chandrasekaran: A great experience. I have enjoyed it, have learnt a lot. It continues to be a tremendous learning experience. I have not changed anything, but tried to add on to what we have. We have been a very employee-oriented firm and we want to better it. I keep on stressing that we have to keep driving strong performance. We want everyone to feel they have a platform to lead and feel good about realising their potential as professionals. We are also saying that everyone has to become accountable, they have to make commitments and long-term commitment and better it. We are trying to inculcate these values among the employees.
It is a journey and we have a lot of work to do. If there is a feeling that we are doing something right, then its good. But we have a lot more to do.
