In an exclusive interview to CNBC-TV18, CEO & MD of the company, N Chandrasekaran said clients appear decisive about IT budgets.
Our clients depend on technology for the whole recovery process. Now, clients are clearer in their minds as to where they want to spend on and decisions taken. I think 2013 will be a much better year.
CEO & MD
After a better-than-expected results, the management of Tata Consultancy Services remained optimistic of the future IT environment. In an exclusive interview to CNBC-TV18, CEO & MD of the company, N Chandrasekaran said clients appear decisive about IT budgets. He harped on the need to stay efficient as any improvment in IT spend will be driven by efficiency. For now, a pick-up in discretionary spend is visible, he said.
The TCS management also believes that pricing will remain stable throughout 2013 and expects volume growth to continue. TCS exceeded market expectations in the third quarter with a net profit of Rs 3,551 crore , up 1 percent (up 23 percent from a year ago), helped by new deal wins. Revenues of the country's largest software services exporter grew 3 percent sequentially (22 percent year-on-year) to Rs 16,070 crore.
The company is looking to hire 60,000 new employees in fiscal year 2013.
Below is the edited transcript of the interview.
Q: What exactly do you mean by your statement that 2013 will be better than previous year?
Chandrasekaran: I repeated the statement I made earlier this quarter. The important point is that the macro environment continues to recover slowly; from technology perspective it continues to be good.
Our clients depend on technology for the whole recovery process. Now, clients are clearer in their minds as to where they want to spend on and decisions are being taken and there is no specific thing that is dragging. So, I think 2013 will be a much better year.
Chandrasekaran: It will remain the same. In some cases it may come down but still the addressable space in that spends for companies like TCS will be larger. In some cases the spending is increasing.
There are three trends and everyone is following couple of trends. First is efficiency, whether it is service management, optimization or single company. There are different themes that touch applications, infrastructure, services and everything. This broad themse are seen in some form everywhere.
Second, the digital theme is across the board for both consumer and industrial companies. Some may focus more on mobility, analytics, front office transformation and customer experience. These are the terms that one hears.
Third -- regulatory compliance. Apart from this there will always be ERP transformation and similar engagements that keep coming and somebody may do supply chain transformation, finance transformation etc. So there are lots of opportunities.
Q: You also used the phrase that there is more clarity on the minds of clients, they are clearer about what they want. What do you mean specifically by that?
Chandrasekaran: They have a clear agenda as to what is their requirement and what they expect from the technology and at what cost. They have clear objectives about product cycle, market, and timings of product, whether to take product to cloud or having a uniform access from iPad for example. They have clear objective and they are moving in a systematic manner and there is no delay.
Q: Does it have any implications for pricing this year because you have seen a bit of an uptick, some of your peers have too or would you still be conservative and say don’t?
Chandrasekaran: Pricing will be stable. I have said this for the last two years. Out of eight quarters, pricing has jumped in at least three quarters. Every time it has jumped up it has been fairly substantial and it has come down for five quarters. But net-net, it has been more or less at the same level. There will be some productive gains in up quarter and it will get moderated in another quarter but basically it has been stable.
Q: You also mentioned that you see a better year for Europe as well. Is 2013, showing much better initial momentum in Europe? Can you elaborate?
Chandrasekaran: European companies are driving optimization and efficiency and that's opening up opportunities and we are working with a large number of European clients.
Now, we are signing larger deal sizes in Europe then earlier and we are engaging on a transformation kind of play and service management is a key so the deal sizes are larger.
Q: Are you now beginning to see signs that companies are a bit more relaxed about discretionary spend, they are also going up the consulting pipeline and you being to see more traction there?
Chandrasekaran: I made a point in the last quarter as well that discretionary spend is happening and the momentum continues. We are now seeing discretionary spend happening and most spend is happens in analytics and digital and enterprise transformation in terms of supply chain transformation etc. These types of engagements come from the discretionary bucket. Our growth in the new markets like Latin America, India etc, predominantly comes from discretionary kitty.
So discretionary budget is looking up and it will vary, one cannot be specific about an industry, this industry is more company dependent. It depends on where they are and everyone wants to get the investments that they have made in their technology to get optimised first then they will spend on discretionary.
Q: In the current quarter you bagged seven big deals, how is that landscape looking and where are the big deals coming from, which verticals primarily?
Chandrasekaran: It is fairly distributed. We have bagged couple of deals in Banking and Financial Services (BFS), retail, healthcare, government and communication. It comes in a significant number from United States (US), Latin America and Asia. Pipeline looks strong and our order book is very healthy as of December. So, I think there is a good momentum.
Q: So if say that this year is starting at a better note you would expect to achieve better volume growth than you have seen in 2012, The year 2012 started with a note of confusion, but you ended up achieving quite a bit of volume growth even in the year that's closed out?
Chandrasekaran: We have done well and we don't give guidance. I am very positive and the momentum is good. So, I think we should do well.
Q: What is the biggest risk factor for this year for you, aside of macro?
Chandrasekaran: I think we had to execute. One thing we have shown is that we can execute well and we need to execute. Execution is a key. I think we should be relevant and because it is just not something that you do for everybody. One needs to understand and put himself in customer shoes, you need to engage and one must learn what makes sense for particular customer and what can we offer and that’s will be a key theme.
It is not that I have an offering; I can optimise something and then try to sell it as many customers as possible. There will be some replicability, but by and large to capture the demand from a discretionary bucket one need to relevant to customers and our teams must get used to that fact and we have been driving this theme and we need to make right investments and bring right teams.
TCS has lot of skills sets, but we are a large organisation and we need to bring the best of TCS in front of client every time, every time we do that clicks and we don't do that and we don’t execute it's a problem and as it becomes larger it’s something that you got to keep in mind and you got to execute everyday.
Q: You mention that margins will be held at these levels, they have done very well in the quarter but the bigger debate is whether you can hold on to this kind of margin performance without the currency tailwind that you have had over the last four quarters. Will you be able to manage that?
Mahalingam: We need to evaluate total new portfolio to manage currency fluctuations. I mean that when the rupee is in a benign environment you do take projects which may not deliver margins upfront but over a period of time they will go ahead and deliver or you work in markets which are delivering less margins. We have done similar things and have built up a great foundation for TCS to grow. We need to be extremely careful on some of them as we go along. It is more of managing the portfolio.
READ MORE ON N Chandrasekaran , TCS , IT, S Mahalingam , Vandrevala, Diligenta, application development and maintenance (ADM), regulatory compliance, Banking and Financial Services (BFS), retail, healthcare, guidance
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