The IT business is witnessing a shift in its business model, going from bread-and-butter legacy services such as application development and management to newer businesses based on digital and cloud technologies. But TCS CFO Rajesh Gopinathan is confident the IT behemoth will make the transition and says its mammoth size will not be an "inherent disadvantage" [towards making the transition].
In an interview with CNBC-TV18's Menaka Doshi, Gopinathan also talked about the company's second quarter earnings and the said the company was making strong headway into making changes emerging out of "technology cycle refreshes" and said such changes were targetted at long-term shifts in technology.
CNBC-TV18 also spoke with Ajoyendra Mujherjee, EVP and Head - Global HR.
Below is the verbatim transcript of Rajesh Gopinathan & Ajoyendra Mukherjee's interview with Menaka Doshi.
Q: From TCS point of view - we saw what happened to market, what we saw happened with China's growth. You look at the global environment right now or you feeling okay about the second half and next year or you feeling a little bit more nervous than you did at the beginning of the quarter?
Gopinathan: It's a tough one to call because we see confidence improving in the US but we are exposed to the banking, financial quite a lot and there is a bit of concern that we need to see how the credit cycle turns and how these events pass-through. As of now things look good in our largest geography, in our largest vertical; we are doing well in BFS, we are doing well everywhere but the macro question is beyond me to call.
Q: I am just asking you to tell me how you feel about right now. Are you feeling that business is a little bit more uncertain than at the beginning of Q2 or even at the beginning of fiscal that you had anticipated?
Gopinathan: Not necessarily. It has not more uncertain than what it was but the events that you spoke about have just happened, so the feedback from that has not necessarily played out yet. We will get a good sense of it as we get into budgeting cycle which will happen through the course of next two-three months because that is when we will get to know.
Q: There is no instinctive gauging of what is going on?
Gopinathan: As of now that doesn't seem to be a major one. So our biggest feedback typically is from banking side of it and the banking side seems quite strong right now.
Q: So spends look as you had expected them to be for the next year?
Gopinathan: Next year is too far away in the current context of what we are but we do not see any major reaction or major pullback currently.
Q: Why are your numbers not meeting street expectations?
Gopinathan: Let's talk about the numbers first and then the expectations.
Q: We heard the numbers yesterday, we heard this morning, heard the analyst call. There is something here that either indicates that the expectations are incorrect or we do not understand what TCS is up to in the recent past or maybe growth is petering off compared to your best years?
Gopinathan: There is no point of saying expectations are wrong because expectations are what they are. Our growth trajectory -- there is no taking away from the fact that the trajectory is slightly lower than what it was in the past but we are positioned well. If you look at it from structural point of view, our focus has been to build wallet share inside the customer base and to ensure that we are positioned for any technology refresh cycle that happens and from that perspective we are building out nicely into the digital space but our participation is more in the adoption and in implementation cycle and therefore our participation is more long ended participation across new refresh cycle. So I am quite happy with the progress that we have so far and we see market share gains or wallet share gains in most of our existing customers. We are not losing out in any of the areas. We necessarily participating to the same extent that some others are participating in the hype cycle._PAGEBREAK_
Q: What is a hype cycle?
Gopinathan: Any technology adoption goes through its period, so it takes a bit of time to build-up then it picks up a huge momentum initially then gets to a peak and after that tapers off and then has a longer tail.
Q: When you say you are not participating as much as maybe others are in the hype cycle. What does that mean in simple English?
Gopinathan: In simple English it means rate of growth in the upturn would not necessarily be the same if you are targeting the hype or the trajectory of the lower end of it. That's the way we have positioned the company, that's the DNA of the company that we are more on the innards of technology rather than the initial consulting sale of that technology.
Q: When you refer to slower growth and the numbers are well-known now. Your constant currency growth has come off from roughly 20-23 percent levels in FY12 to about 16-17 percent levels. Last year maybe even little bit lower if you take Japan out of the mix and now the expectation for FY16, which is the end of this fiscal, is around 12-13 percent level. So clearly TCS moving towards different band of growth albeit on a bigger base, no doubt, but different band of growth so to speak. On the other hand you have got some competitors that were not doing very well in the last few years like Infosys; doing better and better every quarter and on the recovery path and numbers are now dazzling the street a little bit. So when you say that you are not on the high growth path, are you saying that you are pitching for longer term more sustainable business and that is why your growth numbers are looking weaker right now whereas competitors are pitching for shorter term, more dazzled kind of business?
Gopinathan: It is good that you have taken that kind of a time period. When you are starting from FY12 perspective, the way to think about it is that we went through a down cycle in FY09 period and into '12 we build up the momentum coming out of it and we did very well in that and we are currently in a consolidation phase and we are poised for the next phase of growth which we believe will be technology lead. The first phase of growth was more of portfolio mix lead and a general economic recovery is what drove FY12 growth. However, FY12 was the year when '10-'11-'12 were the recovery years and we participated into that recovery and we are consolidated; we haven't loss on that base.
Therefore, when we look at growth, we keep forgetting about that absolute because it is a consolidation on the absolute and we are poised for the next phase of growth which we believe is going to be the technology refresh lead growth and that has its own cycle. So, when you look at technology adoption, it has a very strong growth initially and then it has a slower side of it. We are on a trajectory that is to hit that adoption cycle of it, which is why we are confident about where we are positioned. If you look at our capacity build also, we are focusing a lot on organic capacity build because we are focused on the innards of adoption cycle rather than the initial side of it. When you focus on the initial side of it, you will be more acquisitive in your capacity build because it is a high beta game whereas when you are focused on the innards of the technology cycle, you will be more organic in your capacity build, which is what we have spoken about, the investments that we are making in our digital learning platform. So all of that, which is why we are confident about it; we are consolidating where we are and positioning ourselves to participate._PAGEBREAK_
Q: You have described very eloquently the shift in business that is taking place including the shift in the nature of the business, the type of business that TCS is attracting now. Is the shift going to permit you to get back to 17-18-20 percent growth levels or at this size and scale those numbers are yesterday's numbers and no longer doable in the foreseeable future?
Gopinathan: Whenever we think of size, we always think of it from historical context. When we were USD 5 billion, it was very large compared to USD 1 billion? When we are USD 15 billion, we are much larger than that but inherently 15 is not as if it's the largest one. There are companies at much larger and who have participated in growth a lot more. So we do not believe that we are at a point where the size is inherent disadvantage. We believe the scale in reverse is an advantage, which is what that organic capacity build is all about.
Q: So there is a possibility that you could go back to 17-18 and 20 percent constant currency growth level?
Gopinathan: Every time you put a forward looking number in front of me Q: This is a backward looking number. This is a number that you have already achieved in the past. Will it repeat?
Gopinathan: So that's a forward looking number. So I will always bat you down on that.
Q: I think you have broadly answered that things are looking better from here on? Last year was a tough one. This year has not been as good as previous year either. This is probably a worst second quarter in five-six years. Things will get better from here on?
Gopinathan: It's a quarter in which we have delivered USD 120 million of incremental revenue.
Q: And your competitors delivered USD 136 million in incremental revenue on a much smaller base?
Gopinathan: Absolutely but there is a question of what is the run rate, what is the asking rate and then there is a question of batting in the middle and ensuring that you pick up the run, keep the scoreboard ticking, put the runs on the board and we have decent runs on the board. So we will build out that.
Q: This 15,000 extra in terms of hires anticipated at the earlier part of the year and now in this fiscal. Is it mostly to help fill the attrition lead gaps or are you hiring because you feel very bullish about the opportunities coming up and you need to start building strength?
Mukherjee: Overall what we hire, the workforce planning that we do, it takes into account various factors and attrition is one of the factors but primarily it is also driven by the kind of growth that we see in the future - that does not mean only the next quarter or a quarter after that because some of the people will be joining even in Q4.
Therefore, when I say I will be hiring 15,000 and that will primarily be for our requirements going forward. So given where we are first two quarters; we have already done 45,000 and initially I had said that I will be hiring 60,000 and now I am saying 75,000 because the way where we are poised at this point in time, I am sure we will go very close to 75,000 given our future need. So it is primarily from that point of view yes.
It is the business growth that we see and Chandrasekaran announced the order book that we have in hand, the way things are panning out. However, looking at the technology refresh the kind of competence that we need, what is the kind of skills that we need would also determine what is the kind of hiring that we have to have. It's all these factors which are playing into it and we are looking at building that capacity for our needs that we see in future.
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