TCS working on 12 deals worth over $50 m

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See latest News about TCS See previous management interviews See what other Experts & Brokerages are saying about TCS TCS BSE | NSE 25/05/12 Are Mutual Funds betting on TCS?

S Mahalingam , CFO and Head-Global Finance, TCS said that they have not firmed up the IT budget for 2008.

Mahalingam is looking at offering higher value services to counter the rupee rise. TCS is looking at moving offshore businesses onshore.

They see the rupee at Rs39.50 per dollar in the medium-term. 40-50% revenue will  continue coming from North America, he added.

The company sees a pullback in budget spend in BFSI. They are working on 12 deals worth over USD 50 million and will be pursuing deals in the infrastructure sector.

Excerpts from CNBC-TV18's exclusive interview with S Mahalingam:

 

Q: Could you start off by telling us how 2008 is shaping up in terms of IT budget spend?

 

A: For 2008, we will start the planning process only around this time because for us our accounting year is April to March. But the preliminary indications that we have is that the growth momentum would continue, we are now on a much larger base than earlier but there are definite signs of growth. 

Q: How do you see the operating picture for the company entering calendar year 2008 in terms of what the rupee has done through the Q3 this fiscal year and what you may do with salaries in 2008?

A: Rupee is just one of the factors but there are quite a few factors that we need to do. If you look at TCS, it is a globally spread organization, it has got delivery capabilities in other countries and therefore the extent investment that we are making and the returns that we have got to get will also be an important factor.

 

But coming to the basics like salary increases - that will certainly be one of the factors because we have been having raises of close to 15% over the previous year and I don't think that will continue for next year. We may be looking at figures of 10% rather than 15%. But still, there is salary increase that will come in and so how do we then ensure that margin is not eroded as a result of it.

 

Pricing will be one of the critical factors; not because we charge more for the same service, but because we are able to give higher value services also to the customers. So the portfolio of services that we have is very critical.

 

Another factor is doing more out of offshore in India that we are doing at this moment in time. Then the last is in terms of leveraging our selling and administrative expenses for a greater revenue base. These are the kind of things that we will work on and we believe that we will be in a position to maintain the margins.

 

Q: The rupee is at 39.86 levels, what is your observation with what's happening with the currency and over the next 2 quarters how are you positioning yourself to manage it?

A: One feels momentarily happy and unhappy with this situation because we were sitting at Rs 44 in February and the rupee continued to appreciate over a period and now we are see small movements here and there.

 

Basically for this quarter, we have been looking at 39.50 and we think it will be higher than that. But we need to see a fundamental change for us to be happy whether the rupee will depreciate further or not because the fundamentals are still for appreciation and so we are looking at it staying around 39.50 levels for a little while.

 

Q: Given the salary hikes that you have laid out as per your plans, what are the kinds of hiring plans that you have laid out over the next 2-3 years?

A: Our business plan drives our overall employee count. But as far as campus recruitments are concerned, we have to give our offers almost 1-year in advance i.e for people joining in July'08, we have already made the offer. This year we have made offers to about 22,000 people and our joining rate is very high, it is upwards of 90% and so we expect them to join.

 

Last year at the same time, we had made an offer of only 12,000. So this time, we have increased that offer and any addition to that i.e if we decide to go ahead and recruit 40,000 people, the additional ones will be those through walk-in-interviews, direct recruitments etc which we have the ability to do.

 

Q: You are of course in the process of regional diversification, as I understand that at this point of time, say 12-months down the line how much do you think the US will essentially contribute to your revenues and as a part of your overall portfolio where do you see BFSI's contribution sustaining at over the next 12-months?

 

A: As far as the US is concerned it does about North America in total because US and Canada - we get them together its 52% at this time. And that could be a marginal reduction and other territories could take over. So looking at anything but in 45-50 would be the kind of numbers that we would look at. As far as the BFS portion is concerned - the banking and financial services, which account for about 30% of our revenues that's a fairly big chunk. There are obvious signs of this moment in time that is the major effect as far as the North American banks are concerned or financial institutions are concerned. And we feel that while there maybe some cut backs as far as the overall budget is concerned. But the amount of spend that they do with the companies such as us because when you do offshore that gives a much better cost advantage and so on. And we expect that they would be spending more with us. So we are not looking at a decline in that area, in the worst case it might remain the same but we are looking at some increases in the budget that they have for us.

 

Q: In terms of your deal pipeline, how many deals are you pursuing in excess of about USD 50 million and USD 100 million at this point of time. And are they coming at a significant premium to the deals that you have signed recently, the most recent of the USD 400 million deal as well?

 

A: We signed USD 1.2 billion deal sometime back about a month back, we have made an announcement of that. And therefore we are getting used to doing some of the large deals I am not saying that all the deals that are coming in are at USD 500 million or USD 1 billion and so on. But there are number of good-sized deals and there are about 12 that we are working on, which are over USD 50 million. There is a fundamental perception change that is really taking place, we are being viewed as people who can be contacted for a very large projects. When you talk about large projects, what happens is that the customer has a requirement of cost saving and that is communicated to us, the services are broadened - for instance infrastructure would come in, there will be some sort of business process outsourcing (BPO) or knowledge process outsourcing (KPO) - there will certainly be some amount of consulting and so on. So all of that get bundled and one is looked upon, as a very key vendor to provide key services as far as the Information Technology (IT) segment is concerned.