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Som Mittal, President, NASSCOM believes that since the macro economic factors have not changed much since their February forecast, they would not be reviewing the forecast at present.
With macros remaining unchanged since Nasscom’s February forecast, president Som Mittal sees very little reason to change it at the current juncture. The industry body has forecasts the sector to clock 12-14 percent growth in 2013-14, faster than the revised 10.9 percent growth it predicted for the year, as economic recovery in the US and Europe may prompt more companies to farm out work to India to save costs.
"We are quite sure that unless something worsens over the next one-two quarters, at this point of time the 12-14 percent should be achievable in dollar terms," he states.
Commenting on the US’s proposed Immigration Bill, Mittal says, if the draft Bill goes the through the way it is prescribed, without any changes, may have a serious impact on Indian IT companies. “We will have to find alternatives if the Bill is passed,” he told CNBC-TV18.
He says the Bill can turn into a law earliest in six to eight months.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Will National Association of Software and Services Companies (Nasscom) need to relook the kind of guidance it set out for FY14 because you have one company that is pointing to potential de-growth in Q1? There is one that is talking about 6-10 percent, two that are talking about beating Nasscom. Is Nasscom left a bit confused about the trends for this year?
A: We had given out a guidance just in mid February so it is not being too long and I don't think fundamentally too many things have changed in these last two months, no macro economic factors have changed. While the uncertainty remains, I think the fundamentals of what we have to offer also remains very strong.
We are clearly seeing that it is no longer just the IT budget but people are dipping into the marketing budgets, analytics, social media, and mobility all these are drivers as well. There have been differentiated performances across but the way the new verticals have been added and also new geographies, we will have to wait and watch and I don't think at this point of time we would be reviewing our forecast.
Q: Differentiation is one thing; we are talking almost about polar opposites here; Wipro is pointing to the fact that there could be de-growth in Q1, and there is Tata Consultancy Services (TCS) saying we are confident we will beat that 12-14 percent that Nasscom has set out. Have you ever seen so much bipolarity in the industry and what are you putting it down to?
A: This is something that has happened in the last few years. During this period since 2008; companies have been reviewing their business models.
If you look at the period before that almost everybody had the same vector of growth. By and large there would be some difference in the growth rate but the vector would be the same. I suppose every company is at different points of time in terms of how they went and restructured themselves, changed their strategy etc. I am sure both the above mentioned companies will get back into action and you should see growth. Even in case of some of them, if you take the extreme end of their guidance, at the higher side that is pretty positive from where they were.
Q: The other issue that cropped up last week was the draft guidelines of the Immigration bill. In your mind how potentially damaging could this be for the IT companies and in terms of a timeline how long do you think before which this could become a law?
A: I will start with the second part of your question. The Immigration Bill would have got introduced on Friday; we still have to get that conformation. This has to be debated within the senate, has to come through the judiciary committee and so on. Today, there is a senate hearing on Immigration. It is a long drawn process and then it is going to go through the House of Representatives where the drafting hasn’t even begun. Our estimate would be that the act, the earliest it could come 6-8 months from now but it could take much longer.
By the way it is comprehensive immigration. The issues that impact us are only one part of the bill. There are going to be much higher debate within America on issues relating to undocumented workers and family, temporary workers and many other areas that are getting addressed in the comprehensive immigration bill.
The second part, if the bill goes through without any changes the way it is prescribed will have a severe impact on our business model and it will take us time to find out alternatives to work. There are conditions which prevent today making our people work at customer’s sites. There is talk about increase in wages; there is discriminatory visa fee hike only applicable to companies that choose our model.
There are other conditions which would also impact. So these three-four are major but most of these conditions that exist there not only impact our industry here with services but also impacts our customers and they will start weighing in as well.
So, we have work to do and I am quite sure that many of those draconian conditions that are in the draft bill right now would get changed and we will be working towards offering alternative language etc in the next few weeks.
Q: This is at a time when these companies are already facing quite a bit of volume and pricing pressure. In your mind how much more margin pressures do you think these companies could face as a whole? Do you think many of them are now veering towards single digit volume growth as opposed to the double digit that many of them have spoken about for the year?
A: Margins and growth are two different issues. Margins are very company dependent in terms of where they are and what investments they are making in terms of their selling, general and administrative (SG&A) cost and also in terms of their utilization. I am sure over the next few months the focus will be on improving efficiencies and getting utilisations up.
A lot also will depend upon where the currency is. Currently it is stable and we hope it remains that way but if there would be currency swings either way, it would have pressure on margins for us.
In terms of growth there are some fundamentals which are positive although uncertainties remain. However, the fact that we had started investing in Latin America, Middle East, Asia, countries like Indonesia, etc are growing. We are also seeing signs of countries like Japan opening up now; it is a large country and we have small volumes there.
So, there are some fundamentals that will drive our business up in the positive sense but we surely have to address hurdles. We can handle the market aspects but when it comes to issues like visas etc which would tend to disrupt our business model, those are the areas that Nasscom will be focusing on.
TCS stock price
On March 11, 2014, Tata Consultancy Services closed at Rs 2150.05, up Rs 6.55, or 0.31 percent. The 52-week high of the share was Rs 2384.20 and the 52-week low was Rs 1364.00.
The company's trailing 12-month (TTM) EPS was at Rs 85.24 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 25.22. The latest book value of the company is Rs 165.73 per share. At current value, the price-to-book value of the company is 12.97.
READ MORE ON Som Mittal, Immigration Bill, National Association of Software and Services Companies (Nasscom), House of Representatives, selling, general and administrative (SG&A), Latin America, Middle East, Japan, deal wins, deal sizes, Tata Consultancy Services, Wipro
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