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Jul 13, 2012, 02.59 PM IST | Source: CNBC-TV18

Macros tough, but clients sticking to decided spend: TCS

Tata Consultancy Services, India's top software services exporter, reported a 38% rise in its fiscal first-quarter profit, beating market expectations, helped by a weaker rupee and increase in demand for outsourcing.

There are enough opportunities and there is going to be enough work that is going to be outsourced in the years to come.

N Chandrasekaran

CEO & MD

TCS

Tata Consultancy Services , India's top software services exporter, reported a 38% rise in its fiscal first-quarter profit, beating market expectations, helped by a weaker rupee and increase in demand for outsourcing.

Speaking to CNBC-TV18, N Chandrasekaran, CEO & MD of the IT major said clients have learnt to adapt to the volatile environment prevailing right now. "The macros remain challenging, but clients are sticking to their decided spend," he said adding, “no staling of deal ramp-up seen". 

TCS and Infosys are mainstays of India's USD 100 billion-a-year information technology and back-office services sector that earns about three-quarters of its revenue from exports to the United States and Europe.

TCS said in the first quarter, growth was seen across all industry segments led by retail, telecom and BFSI (Banking, Financial Services and Insurance).

Pricing pressure weighed more heavily on Infosys than TCS during the quarter. Infosys’s billing rates were down 3.7% from the previous quarter, compared with 1% at TCS.

TCS management said the change in mix is leading to marginal price decline. However, they expect pricing to be largely stable, excluding change in mix. “We do not see need to sacrifice on pricing to maintain volumes,” S Mahalingam, CFO, TCS said.

TCS made a net addition of 4,962 employees in the first quarter ended June 2012. The software firm expects to add 50,000 employees in the current financial year.

Ajoy Mukherjee, Global Head-HR at TCS said that though the attrition rate was a bit high in the first quarter at 12%, it remained under control.

Below is the edited transcript of their interview with CNBC-TV18.

Q: Was it a coincidence that you and Infosys decided to report on the same day because we have never seen it in the past?

Chandrasekaran: Yes, it was a coincidence. We fix the dates well in advance for the whole year based on the availability of the directors.

Q: There was no thought of pressing home the relative advantage by reporting on the same day?

Chandrasekaran: No, absolutely not. You don’t know what numbers will be when you fix the dates.

Q: What is going on with the industry, some people are saying it is very bad out there, your numbers don’t show that up, is the industry getting very polarized because the numbers are getting very disparate?

Chandrasekaran: It is very difficult for me to comment whether it is getting polarized or otherwise, but basically my take is that the clients have learnt to operate in this environment. That is the fundamental viewpoint that I have.

Q: But is there a significant churn in market share which is going on because that would seem evident given the kind of disparate performances between the large players? Do you think your market share is growing at the expense of some of your peers?

Chandrasekaran: Not really. In a manner or speaking, this is the industry which is very large. It is a USD 1.5 trillion industry and it is very fragmented. You have to see our size of USD 10 billion in the context of USD 1.5 trillion size.

When you look at it that way, it is not a question of taking market share from X or Y. There are enough opportunities and there is going to be enough work that is going to be outsourced in the years to come.

Q: How do you match the two, the fact that you are saying that the environment is quite challenging which we can all see but your volume growth is more than 5%?

Chandrasekaran: I am not saying that the business environment for us is challenging, I am saying the macro is challenging. Clients on the technology spend side are staying course.

The budgets maybe what it is, some companies may have higher budgets, some companies have lower budgets, but they are executing to their plan. We are seeing clarity in the way they go about executing their IT projects currently.

Q: In the US or in Europe, you are not seeing any kind of stalling of ramp up plans at all and no cut down in budgets whatsoever that you have witnessed?

Chandrasekaran: No surprise cut downs. If there was a cut down while deciding for the year, that stays. There is no knee-jerk during a quarter or during a month. None of our projects have been cancelled, things are on track.

Q: How do you explain the 5% plus volume growth for BFSI because last quarter was a bit tepid and you seem to have bounced back again?

Chandrasekaran: We have done well on BFSI overall. Insurance we have done well, BFS also has grown albeit lower compared to insurance. Even in BFS there are a lot of initiatives in terms of efficiencies. They may be slower on discretionary projection in BFS in many of the large clients.

But still all the banking and financial institutions are going through enormous pressure in terms of liquidity, capital adequacy, margins. That is really forcing them to do more and more work in terms of bringing efficiencies.

They are all translating into some sort of IT projects whether it is rationalizing application portfolio, rationalizing their payment systems or going in for platforms or infrastructure optimization.

There are variety of such initiatives. They are more open to BPO now than ever before and there is lot of spend in terms of regulatory. So there is a variety of engagements going on even in financial institutions.

A lot of insurance companies are looking at again both efficiency and transformation. They have done a number of systems over last 20-30 years. It is a time they are looking at optimizing those systems as well. So we have such deals as well.

Q: The general apprehension would be that in the kind of environment that we are living in today, large deals would start drying up in the BFSI space, which is at the heart of the problem, you are saying that you are not seeing any signals of that happening going forward?

Chandrasekaran: You put it very strongly but we have signed three deals in BFSI this quarter infact on BFS not I. So for us the data points show that there are enough deals. Even the banking and financial services constitutions are adopting technology to recover from the state they are at.

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