India's largest software services exporter TCS says the company had the second sequential quarter of realisation improvement. Vice-president and CFO Rajesh Gopinathan says the company did a broad-based margin management. As far as realisations go, it was largely flat in FY16, he says. "Realisation in Q4 was good and we hope to maintain it in Q1 FY16," he adds.
According to him, the client ecosystem is fairly strong. He is going into FY16 with a positive business environment.
The IT services major has also been battling high attrition over the past one year. Ajoyendra Mukherjee, EVP and global HR Head, TCS, says attrition rate in the fourth quarter stood at 14.9 percent. He believes it is because of the opportunities in the job market that attrition has been this high.
Below is the verbatim transcript of Rajesh Gopinathan and Ajoyendra Mukherjee's interview with Menaka Doshi on CNBC-TV18.
Q: This Q4 in some sense you got saved by a control on cost which helped benefit your margins and other income which helped you beat the profit expectations so to speak, what is the outlook for Q1 of FY16?
Gopinathan: I would characterize the margin performance slightly differently. We have had the second sequential quarter of realisation improvement. We have had about 80-90 bps improvement in realisation. We have moved work greater offshore, so greater offshore leverage in some of the areas that we have been working on. Our smaller geographies have registered much better than company average growth so we are improving scale in some of these operations and in a muted quarter, we obviously have focused on cost and managed it. So it has been a very broad-based margin management and we are fairly happy about that.
Q: Is this sort of improvement in realisation sustainable in the quarters to come or is it sort of one off and can you give us some outlook on that?
Gopinathan: We did a fairly decent one last quarter and we have followed up with a strong one this quarter.
Q: So next quarter will be better?
Gopinathan: If it could be traced that way, it will be great but let me put it this way. We have always maintained that the pricing environment is quite stable and there is a bit of a shift towards newer service lines, which also comes through but this is also a factor of the number of working days and various other elements so there is volatility but I think in past periods we have discussed with you on this whole issue.
Q: Both this has come on the back of improved or higher fixed price contracts, realisation?
Gopinathan: Not necessarily.
Q: So what has prompted this improvement in realisation?
Gopinathan: Some of it is service line mix because in the same larger service line, newer services attract better price points, some of it is related to greater penetration in the better paying geographies. So some geographies have a better realisation side. So it is a mix of everything.
Q: Therefore again I ask you, sustainable over the next few quarters? Can you continue to improve?
Gopinathan: The pricing environment as I maintained in the past is fairly sustainable. The quarter-on-quarter (Q-o-Q) realisation movement is more volatile one but for the full year, our realisation has come in almost flat, slightly positive, 0.1 kind of positive, which goes back to our whole discussion in the past also where we were maintaining that we see a fairly stable pricing environment. So that we are confident about next year also.
Q: In the last year in FY15, in Q2 or Q3 you were very candid in pointing out that the environment is not looking good at all and I think maybe that was probably the first time that we heard management say, this may not turn out to be what we had anticipated at the beginning of the year. I am asking you for the same calendar at this point in time to tell me whether FY16 is going to be more of the same when compared to FY15 or is it going to be an improvement? Can we go back to FY14 levels at least?
Gopinathan: I will answer that but let me frame what we said in the middle of last year.
In the beginning of the year we had come out and made certain statements based on what we expected and what we thought. In the middle of the year when we saw that the momentum was not at the level we had expected, we had pointed out that it is likely to be slightly muted compared to what we had started the year with. But that is not to take away from the fact that it has been a phenomenal year because Q1 and Q2 were outstanding and we have ended the year with 17 percent constant currency and 15 percent on dollar terms, which is right way up there.
So it has to be seen in the context of what we said earlier. Within that context, given our experience last year, we don’t want to comment too early about the year but let me put it this way, we are going into FY16 in a scenario, which is very similar to the way we went into FY15. The overall business environment is positive, there is a technology imperative -- there is a proven technology out there which is getting well accepted in our client base. Our overall client ecosystem is fairly strong financially. So it does have the capacity to invest. There is a technology imperative to start an investment cycle whether the investment cycle will kick in or not is something that we cannot predict but we are positioned for participation in that investment cycle and we think we are positioned very strongly. So we don’t want to comment about how it will turn out.
Q: So you feel just as optimistic about FY16 as you did about FY15, you just don’t want to say it because FY15 turned out to be different?
Gopinathan: We are as optimistic.
Q: Just as optimistic last year same time you were just this optimistic?
Gopinathan: The environment that we see is no different from the environment that we saw then.
Q: The quarter has been difficult on utilisation, we have seen a decline, it has been very difficult on attrition, we have seen a big move up 14.9 percent, are you having people problems at TCS?
Mukherjee: Not really -- utilisation also if you look at the overall yearly utilisation including trainees, there is more than 5 percent jump as compared to last year and if I look at the utilisation for this quarter, it is very similar to last quarter. There is a slight dip as far as quarter-to-quarter is concerned and that also depends on the fact as to what is the number that we have been hiring in this specific quarter because the moment you get some of the people in, they will not be immediately billable. So that takes time. So these are the factors.
Attrition is definitely higher as you pointed out, it is about 14.9 percent compared to where we were as far as last year is concerned and also from that point of view, during this year it has gone up.
Q: Is it fixable?
Mukherjee: It is and it is not that it has gone up suddenly, every quarter it has been inching up and we have talked about it in our previous interactions also.
Q: Why is that happening?
Mukherjee: It is primarily the overall job market. If I get into the job sides and if I look at the different opportunities available in the market today, there are phenomenal opportunities for people. So at this point in time, what everybody is looking at is how do we give opportunities to our people so that they get to switch from technology to technology, they have a proper career path, career plan and the other factor that comes in our industry is that our GenY population is about 80 percent and as we know this generation wants everything. As of today they don’t want to wait for something. So that is an HR challenge as to how do we communicate with them.
Q: That hasn’t changed dramatically in the last one year, so it cannot be a new challenge?
Mukherjee: Exactly, that is why it is not that it has suddenly gone up. The attrition has been going up.
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