Attrition has receded in last two quarters: TCS

TCS has been witnessing a sequential decline in attrition rates for the last two quarters, says Ajoyendra Mukherjee EVP & Head-Global HR, on the company's December quarter performance.In an interview to CNBC-TV18, Mukherjee says attrition had been rising for the last couple of quarters.Speaking in the same discussion, Rajesh Gopinathan, CFO & Vice President, says TCS will continue to persist with its two quarter forward rolling strategy of currency hedging.He says the company is not rigid about the EBIT margin of 26-28 percent and will tweak margin band if there are good opportunities Below is the verbatim transcript of Rajesh Gopinathan and Ajoyendra Mukherjee’s interview with Menaka Doshi on CNBC-TV18.Q: Is 2016 going to be a better year than 2015 and when in this annual year are you going to finally stop underperforming street estimates?Gopinathan: Definitely we go into 2016 hoping that it will be a better year as we go into every year.Q: What is it looking like on a more serious note?Gopinathan: It is a year where we are thinking that US is where the growth is likely to be, which is something that we have been seeing through the last year also. So, if you look at the relative performance of US compared to Europe, last three quarters you would see that systematically, it is doing better than Europe. We expect that momentum to continue into the next year also. So, we are going to have a fairly bipolar performance. It is going to be dependent on US in terms of growth and we are going to see volatility in the non-US portfolio and it is going to be very difficult to call what that volatility is likely to be like.Q: US is half your business, right, about 40 percent or so?Gopinathan: 53 percent.Q: Will it pull its weight this year and therefore, again, I ask you the same question. Can we expect 2016 to be a better year than 2015?Gopinathan: It is a question that we will not be answering this year once again because, as I said, it is a difficult call to take. It is going to be a combination of these two factors. In the US, we believe that it will do better as we go through the year, but what the total will be and how the volatility pans out, it is very difficult to call right now. We will get better clarity on US towards January-February as we start seeing visibility on client budgets come through.Over the last couple of years, we have gone in with very optimistic ones, but the investments have not really panned out. So, we are being cautious to that extent of waiting to see where the budgets are and how the projects get kicked off. But, there is no real reason to be negative about US. So, on that side we are fine. The volatility in the other markets is going to be very difficult to predict.Q: Is that volatility going to be big enough a factor for you to reconsider your 26-28 percent margin band or at this point in time, no?Gopinathan: The margin band is always under reconsideration to that extent.Q: No, say that again, margin band is always under reconsideration?Gopinathan: Always under consideration. Let me explain that. So, the 26-28 percent is a tactical band which gives us operational freedom. The 26 per se is a strategic pick, and that strategic pick gives us a lot of headroom to do what we believe is right. So, if we were to change our business mix in a manner, where that is changed, it will call it out, but we are not wedded to that. The 26-28 percent has to be seen very tactically. On a strategic basis, we are not wedded to 26 percent. It is a lever that we have. It is a competitive differentiator that we have and we will utilise it to our advantage whenever the opportunity comes.Q: That begs two follow-up questions. One is, do you expect a utilisation that would in fact threaten the 26 percent floor and see maybe margins falling a little bit below that in a conscious strategic fashion, or do you expect that competitive and pricing pressures might in fact force you to reconsider the band altogether and say that 26-28 percent is not what works for us anymore in this market place, maybe we want to look at 24-26 percent or whatever the figures are hypothetically?Gopinathan: My expectation is that it will be the first one rather than the second one because the competitive pressures we have been seeing for quite some time and we have been able to manage that and we have stayed within that band and operationally we have been able to do fairly well. But, strategically, if opportunities present themselves, we would not hesitate.Q: I am making this distinction here, because I have not heard you say this in the past, and I am hearing you say this for the first time. This quarter I did not hear you say this for the press conference yesterday or the analyst call either. So, you are saying that we may see a drop in margins to below 26 percent not because of actual margin pressure or competitive pricing pressure, but because you just are choosing to reinvest more in the business.Gopinathan: The reason I am emphasising this is that there is a growing commentary that we hear outside where our margin band is being seen as somehow a strategic pullback on us, on our opportunities.Q: An inflexibility as such.Gopinathan: I am emphasising the fact that it is actually a strategic headroom that gives that. So, the reason we are calling it out is, as the market commentary builds up on the other side, I want to use this opportunity to convey that message, that it is not something that is carved in stone. It is our choice._PAGEBREAK_Q: But, can we likely see in this year that floor of 26 percent falling by maybe let us say a 100-200 basis points because you are choosing to reinvest more in your business, so, reported margins may come in below 26 percent. I just want to be really clear on this because I think you are saying something that I have not heard before.Gopinathan: What I said was, it is always under reconsideration and that is where you took off.Q: That is a generic comment.Gopinathan: No, but you took off on that comment. And that is the truth because that 26 percent is subject to what we do in terms of our strategic investments. If we were to do something which would change that 26 percent level, we will call it out which has been our stance.Q: So, in the last two minutes, all you have told me is that you are being more flexible.Gopinathan: I am not, I am re-emphasising that we have always been flexible.Q: And there I thought you were saying that we might see margins drop below 26 percent this year.Gopinathan: We are exactly not saying that.Q: Certainly not saying that?Gopinathan: Certainly not saying that and what we are definitely saying is that, as I said, it is always under reconsideration. It is a flexibility, It is the power that we have. We will deploy it when it comes.Q: You are looking at the rupee closely?Gopinathan: That would be an upset stomach if you keep looking at it too closely. So, the whole idea of having a hedging strategy is that we can stop looking at it too closely.Q: I know, but really, can you stop looking at it? Is it worrying you at all at this point in time?Gopinathan: Let me put it this way that the market puts a lot of pressure in our discipline to maintain our hedging policy and stay disciplined inside our hedging policy because we see it going all over the place. We typically review it every year. So, this is the quarter where we look at it. As of now, we are saying with our two quarter forward rolling kind of a strategy and yes, there have been opportunities where we feel huge pricing mismatches have come in the market, but we have stayed within our policy levels. As I said, looking forward it looks interesting, but we also have the fact that historically, five years back, we were at the same point and it is only last March, that I flushed out the last of my forward covers which were taken at the time when it was expected that the rupee will strengthen way beyond 40 to the dollar. That reality of the conviction and the pain that we had for five years is also with us.So, as of now, we have a policy, we are following it. It is a programmatic hedging plan and the programme requires it to get reviewed and the review will come up in Q4. Whenever that comes up, if there is a shift, we will communicate that. Otherwise two quarters forward, stay focused, cover your receivables completely, revenue forward two quarters.Q: Key challenge for this year outside of all the general challenges that you talk to us about anyways and when do you expect this six quarters of underperformance to bottom out?Gopinathan: Very difficult to say in that perspective. We expect, as I said, again, the cyclicality to be there. So, Q1 and Q2 will be coming in better, but we will get a better visibility in Q4. I am not ducking the question, but it is no way that I can answer that sitting where I am currently. So, we will have to wait and see how it comes.Q: Will we see a turnaround in the next couple of quarters or is next quarters headline going to be seven straight quarters of a miss.Gopinathan: That depends on you guys. We will do our best to try and make sure that it does not._PAGEBREAK_Q: You have had some improvement in attrition.Mukherjee: It is not where we would like it to be, but definitely, we have improved.Q: Neither is utilisation. Nowhere near your peak levels, though I know it is Q3, you are going to say seasonal issues, but nonetheless.Mukherjee: However, utilisation is again, from what we have said, it is just like the margin band, we have said, the utilisation, we would like it to be above certain range. It is about 83 percent and with that we are comfortable to meet our margin band and that is something that also drives the kind of investment that we are making in building or developing capabilities of our people. We announced 1,00,000 people to be trained on digital and things like that which is pretty much on course. We have trained about 70,000 and those are factored in when it comes to the utilisation. So, we are pretty much happy with where we are. Do we want to improve it? That depends on the business plan that we have.Q: I was looking at back quarters, attrition levels were around 10-11 percent for a very long time. How long will it take for you to get back there to be able to do a better job of retaining your employees?Mukherjee: That is a difficult one. 12-13 percent was the range that we were having for quite some time, 12-13 percent in that range. It is last couple of years where it started inching up slowly and went all the way up to about 16.2 was last quarter. Now, it is again coming back. It is slowly declining. Interesting part is looking at the quarterly attrition, not the yearly, because last twelve months (LTM) factors in the last three quarters. Quarter is current quarter and if you look at last two quarters, we have been consistently coming down. Total number, though my base is increasing, as well as the attrition for that particular quarter. This particular quarter, it has dipped by almost 0.5 percent for the quarterly attritions, annualised it so it is 2 percent.Q: That is a very long answer to a simple question, when will you come back to 10-11 percent?Mukherjee: I wish I could have a crystal ball, I could read everyone’s mind and tell you where it will be two years down the line.