No headwinds expected in FY17; see growth in all verticals: TCS

Tata Consultancy Services, breaking its six-quarter jinx, today reported above expectation fourth quarter numbers with 3.8 percent increase in its consolidated profit to Rs 6,341 crore. The company is ending FY16 on a lower rate than FY15, says TCS’s MD & CEO, N Chandrasekaran. Fourth quarter, considered seasonally weak, has seen good growth from all geographies as well as all verticals, he adds.Retail, manufacturing and BFSI (insurance) sectors have reported healthy volume growth in the quarter gone-by. However, Rajesh Gopinathan, VP & CFO says that Japan, India, Latin America are volatile geographies for the company, he says adding that core geography US is coming back well for TCS. Chandrasekaran expects the company to clock margin in range of 26-28 percent in FY17. “Quarterly variations expected on the margin side but structurally margins are still strong,” Gopinathan says.“Most of headwinds are behind us,” he says adding that in FY17, there are no major headwinds for the company. The on-going ones like US elections, currency fluctuations and oil prices are expected ones, he says. The company’s digital business is expected to surpass USD 5 billion target in next five years. “We have seen some transformational deals in digital,” he says. Speaking on IP infringement case allegations by the US, Chandrasekaran says that TCS continues to maintain that there was no violation and is in touch with all its shareholders regarding same.Ajoyendra Mukherjee, Executive VP and Head of Global Human Resources at TCS says that for FY17 gross addition of employees will be lower. The need is to up local hiring and increase productivity while mitigating evident risks, he says adding that US visa hike increase continues to remain a major issue. Below is the verbatim transcript of N Chandrasekaran, Ajoyendra Mukherjee and Rajesh Gopinathan interview with Shereen Bhan & Reema Tendulkar on CNBC-TV18.Shereen: Let me start by asking you about the outlook as far as FY17 is concerned? I know you don’t give guidance, but let me ask you this in the context of the fact that you come off a very difficult quarter, in fact, by your own acknowledgement it was perhaps the most difficult December’s quarter that you have seen since the global financial crisis (GFC) in FY09. You have also come off a fairly difficult year exit rate has been lower in comparison to the previous year. Given, where you currently sit today what gives you confident that FY17 is going to look better than the year gone by.Chandrasekaran: So well, I will not give you a comparison between FY17 and the year gone by. So as you rightly said we are exiting at a lower exit rate in FY16 compare to what we did in FY15, but what is very pleasing to me in this quarter’s performance is that it’s a seasonally weak quarter and we are coming off a bad quarter and we delivered a volume growth 3.2 percent and the key segments for us is BFS is very important. BFSI delivered a growth of 3.2 percent and US has done very well with a 2.4 percent growth which is better than the company average. Continental Europe another sector which has been a little volatile and little down has again posted excellent growth at 3.5 percent and all key sectors like manufacturing, retail, life sciences, travel and hospitality all delivered very good growth. So overall if you see the momentum is there in all the key sectors. The second important element is as we exited last year we had multiple headwinds. I had talked about it, probably a little bit too much than should I in hindsight. So, if I look at it today I would say that most of them are behind us.Shereen: I am glad that you talked about headwinds, so let me pick-up on each of those headwinds that you very carefully articulated for us in the previous several quarters as well. And let me start by asking you about Diligenta because as far as the last comment that came in from you in the previous quarter, you said that Diligenta should stabilise in Q1 of FY17. Is that the sense that you currently get as well as far as Diligenta is concerned?Chandrasekaran: Yes, I think we are bottomed out and from here, let me put it this there won’t be a material drop from where we are.Shereen: So de-growth will continue or do you think it will not continue.Chandrasekaran: De-growth will not continue. We think it will flattish.Shereen: It will be flattish as far as Diligenta is concerned. Do you anticipate at least several more quarters of pain before you started to see a pick-up as far as Diligenta is concerned?Chandrasekaran: We are in discussions with deals and they get closed. We will see growth but I won’t be able to give a prediction at this point.Shereen: So do you expect pain to stop, but a pick-up is unlikely in the short-term as far as Diligenta is concerned.Chandrasekaran: We will wait for the pick-up. I won’t comment on it.Shereen: That as far as one headwind is concerned, let me ask you about the other and that’s Japan because there again whether it’s a finalisation of deals or there were integration issues that continues to be a pain point for you. How much longer?Chandrasekaran: So from a Japan point of view, we have done a good job of integrating, the most important thing in such kind of cross-border deals where lot of people are involved. The integration between the local teams and global teams and that integration has happened very well. So again in Japan, I would say that the de-growth should not happen. We will see a moderate growth from here and I won’t be able to quantify how much moderate, but we are happy where we are. We have done the integration very well and we don’t think we are going to de-grow. We are going to grow from here.Shereen: So on both Diligenta as well as Japan you believe that the phase of de-growth is over and you are not going to see an uptick immediately but you believe that this is the start now as far as the turnaround is concerned.Chandrasekaran: Yes.Shereen: Okay, let me then ask you in terms of some of the other issues and this was as far as your insurance business was concerned. The last quarter you had said that you were expecting it to stabilise BFSI has kicked in for you and you just talked about 3.2 percent growth that you have seen as far as BFSI is concerned. Feel confident of being able to continue with that given the kind of momentum that you are seeing.Chandrasekaran: Absolutely, I think insurance has turned the corner and BFS continues to do well, so BFS as a segment I feel pretty good about as we exit Q4.Shereen: Margins, that is where there is a little bit of concern. I know that you stated that you will continue to be in the 26-28 percent margin band or range that you held up. But are we likely to see you come in at the lower end of that band given the fact that you have also spoken about the need to incrementally invest more. In this quarter you had to invest about USD 250 million towards organic growth. Is that the kind of run rate that we should expect?Chandrasekaran: We just want to have the flexibility. We have said the range is between 26-28 percent and in digital we are seeing scale. So, I talked about it in March meeting with the analysts. We have put out our presentation also. We have seen a very good pickup in transformational type of deals. It is no longer small deals here, small deals there.Shereen: Can you quantify transformational deals for us?Chandrasekaran: If you see our digital revenues have contributed 15.5 percent from about 14 percent. It is a very significant rise in a single quarter. That kind of a jump you don't see and that momentum is because of the deals that we see. Deals whether it is in terms of analytics whether it is in terms of big data, whether it is in terms of cloud transformation, private cloud, public cloud transformation not only at the infrastructure level, with the associated portfolio at the top all the way up to the front end and the integration from a technology perspective. From an industry perspective it is a transformation of merchandising system, these are all about - starting with the business process or a business model or a change that you can possibly reimagine in the front end and then carrying it to that kind of engagements we are doing and we did showcase many of those in our EBC. We will be glad to have you spend some time with us.Shereen: Do you believe that given the momentum that you are seeing on the digital side of your business you could perhaps even better the target that you have held out of USD 5 billion over the next five years?Chandrasekaran: That I have already said we will.Shereen: But significantly so on the back of the visibility that you now have today?Chandrasekaran: Momentum is there, let us wait. As I said I am talking more positive today than I spoke to you few months ago. So, let us wait till some of this translates.Shereen: So, what exactly are those triggers that you are waiting for, what is it that you are hoping to materialise?Chandrasekaran: It is a very simple thing. At the end of the day how your quarter is going to be. So, let us wait for a couple of quarters.Shereen: The quarter has gone by but I am saying in terms of the visibility that you have on the digital side. Are there any specific levers or triggers that you are hoping will materialise for you?Chandrasekaran: Yes we do, but we have such kind of things that we look for, deals we look for and we feel good about it today and I would just wait for couple of quarters.Shereen: Coming back then to the margin question because that was the question that we were talking about. Chandrasekaran: We are committed to stay in range of 26-28, whether we will be in a quarter at 26.1 or 26.2 or we will be at 27.8 that is the flexibility we want. We don't want to comment on that because when we are building out all these new services and lot of transformational deals happening then we want to be able to have flexibility to invest. We feel pretty confident that we can stay in this range and we will stay in that range for the year. Shereen: Other operating metrics that you are seeing at this point in time and you spoke about pricing and that has been flattish as you pointed out for pretty much all of last year. Do you get any sense given the competitive landscape, given your order book at this point in time that you could expect any sort of a pickup as far as pricing is concerned?Chandrasekaran: Currently our view of the world is that for some time pricing is going to be stable. If you look at our performance for the last few years, we have been pretty much still same. There may be a blips between quarters but overall even this year 14.9 percent on 11.9 percent on the constant currency and 14.8 percent in rupee terms. However all the growth has come from volume and not pricing. Pricing has not dipped, it has stayed flat.Shereen: Do you believe that you could exercise some leverage as far as pricing is concerned? Does pricing power return given the competitive landscape or should we not expect that?Chandrasekaran: At least for short term let us not project that, then we will see. It is also about differentiation. With the kind of investments we have done and the kind of engagements we are doing and the kind of platforms we are building you will see us differentiating in due course.Shreen: Any new capabilities?Chandrasekaran: A number of platforms we have launched. We have launched horizontal platforms, a number of them. We have launched many digital platforms. Our Optumera platform is doing very well in retail, we have advanced drug development platform, so there are many such investments we have done and we have launched our neural automation product ignio which has done very well. We launched it in June and it took us 2-3 months to put the sales and other teams. In the last 6 months we have closed 16 deals. Customers are very happy and we are continuing to see lot of momentum. So, there are many things that we are doing and you have to connect the dots and it takes time.Shereen: How much time? What is the timeline that you are working with?Chandrasekaran: Don't ask me anything future.Shereen: I know you don't want to focus too much on India because of the kind of volatility that the India business sees. It is down from 13 percent of revenues to about 6 percent of revenues. Are you getting any sense of stability at least as far as the India business is concerned?Chandrasekaran: We are quite happy with where we are today, much better than couple of years ago or even a year ago.We have crossed billion dollars, we have integrated CMC. We clearly have the government business, the corporate business.Shereen: Government business is still a smaller piece of the pie as far as your India revenues are concerned, it is largely driven by corporate.Chandrasekaran: Yes but we think that there will be some transformational opportunities in the government business.Shereen: Is that something that you want to go after because you had a change of heart. You were aggressively chasing the government business and then because of the problems and the pain that you suffered we thought that there was a change as far as your strategy was concerned. Are you now reviewing that call as well?Chandrasekaran: There is no change of thought. We are very disciplined. We do deals based on our discipline. It is not that a particular sector is a bad sector or a particular sector is a great sector. We believe when we have a opportunity, we take a call and look at what it means.There are two things, you need to be able to execute first. Do you have a right delivery mechanism to execute that deal. Can you do that? Second one is do you have a right financial model? We do that rigorously.Shereen: Is it not a fact that you were disenchanted with the government side of the business and you were not really looking at pushing the pedal on that front. So, is there a review?Chandrasekaran: I am not forcing any change. All I am saying is that if you look at the last few years, I have consistently said that we have rigorous discipline to be able to execute, deliver, make the right margins and the right cash. All of these things are important to me. We do that, sometimes we walk away from a government deal and sometimes we walk away from a corporate deal, sometimes we walk away from a international deal. When we say walk away, I think it is a wrong word to use, we feel that may be it is a good opportunity for someone, it is not for us. So, we decide not to bid because any one of these reasons can affect us.Shereen: So, you are saying that you are better prepared today to chase government deals more aggressively or there is something that has changed in the government environment that forces you to go after the deal more aggressively?Chandrasekaran: I am saying neither. We have a right mix today. We see good opportunities. I think Digital India also as a platform offers good opportunities but we have got to see those things translate into projects and we will engage with those projects.Shereen: Are you looking at merger and acquisition possibilities as well? I know you never comment on that besides saying that you are always open to looking at new capabilities of plugging gaps. Anything at all at this point in time that you believe is a gap that requires plugging of any sorts?Chandrasekaran: I don't think I will be answering this question here. However whenever we do I will inform you first.Shereen: Are you at this point in time looking at beefing up certain capabilities?Chandrasekaran: Our strategy to acquisition has been consistent. We have always said that we evaluate lot of deals. I at least look at 100 deals a year. My team looks at lot more.Shereen: How many have you looked at this calendar year?Chandrasekaran: Always there are deals coming out every week, every month. Our teams evaluate, it is not a one man decision. Any time the team collectively feels that this is the right thing, if it is in the area of healthcare or in the area of insurance or banking or digital or analytics, whatever it is the operating teams feel that it is a right deal then I get involved and we look at it. If it is the right thing we do it.Shereen: Are you actively involved in looking at any deals at this point in time?Chandrasekaran: No.Shereen: I listed out a bunch of the headwinds that you have spoken about last year, specifically in the last quarter, if those are not headwinds anymore and to quote you “the negativism is gone” is what you said. Are there new headwinds that you are worried about in specific today.Chandrasekaran: Fortunately, not today. Shereen: No, none at all.Chandrasekaran: I don’t have any major headwind apart from what I spoken to you.Shereen: Is the global headwinds especially to do with currency volatility.Chandrasekaran: See the macro is what it is, if you look at the macro, so those things are there.Shereen: So you are not particularly concerned about the macro at this point of time.Chandrasekaran: See macro is something you comes upon all the time we have this election this year and you have the major decision coming in the UK and up next quarter and then oil movement can be anywhere, currency volatility can go anywhere whichever way. So those kinds of headwinds are always there and that is something that we are seeing it every day now, so global macros we just keep a watch and reacts based on what happens because we don’t have control over those incidence. I can fix something in my portfolio. I cannot fix something outside my portfolio.Shereen: So speaking of what you can fix within your portfolio and that’s what you spoke about in the previous quarter as well, when you acknowledged the fact that it wasn’t a good feeling to be missing street estimates for six quarters and you said that you were trying to fix those one times events so to speak. Speaking of one significant one-time event and I don’t expect you to pre-empt what is likely to happen in quarter because it’s a matter that subdued, but if you explain to us what should we expect now as far as this matter is concerned in terms of when the appeals will happen, what should we really expect when it comes to this Court’s matter where you are facing this USD 940 million fine. Chandrasekaran: Thank you for prefacing it in a detailed way but as said, I would like to stick to the press statement that we have made. I don’t like to not make anymore comments because the case is in the Court. So we will deal with it as it happens.Shereen: But in terms of a reputational loss or reputational risk on the back of that this is of course fixable by you and of course what happens in Court is a different story altogether but in the interim what you are doing at this point in time to mitigate reputational risk and reputational loss.Chandrasekaran: See I think the way to look at it is that we have clearly said there is no violation of intellectual property, so we have said in the press statement and I will leave it at that and we are in touch with all the stakeholders and we will do what is right and what is necessary.Shereen: Have any of your clients express any concerns on the back of this issue.Chandrasekaran: We are dealing with it. There is no concern at this point of time.Shereen: Let me then asked you because you said that at this point in time you don’t foresee any specific headwinds either in the domestic market or globally and of course what happens on the macros will happen, but if I were to ask you about some of the challenges that you were perhaps organisationally faced with those one fixes that you were hoping to, to pull through. Do you believe that a lot of those fixes have now been fixed in that sense.Chandrasekaran: There is no one time fix for any problem in my opinion because we build an organisation, we build a strong organisation and everything is process oriented except what we do on the innovation front and agile front, so we have taken all the steps from long-term perspective and we have to continue to enforce whether it is in terms of controls, whether it is in terms of security, whether it is in terms of financial discipline, whether it is in terms of ethical practices. These all things are extremely important. No one can say all these things or at a point that no mistake will happen, but what is important is the commitment and the values of the organisation and the people at the top on how do they react when a slip happens. Okay, we are committed to that and we have a very strong track record, we have a blemishless track record and we have highest commitment to values, ethics, integrity whether it is for own or for our clients or any partners, third-parties that we work with. We respect that and we will do everything we can in order to live up to that day in and day out for many, many years, decades and centuries to come._PAGEBREAK_Shereen: The estimation within the market was that because of the currency impact we would have actually seen an improvement in margins but you have actually declined by about 50 bps. Given the fact that you also expect incremental investments on account of new businesses etc lower end of margin band, is that what we should work with?Gopinathan: We are fairly happy with where we are on the margin side. Remember that we are coming off from a very sustained investment cycle. We have been significantly investing into building our digital businesses. Our digital business which is about USD 2.3 billion today is almost entirely built organically. We have invested significantly into internal skill building, we have invested into experimenting with new business lines. We have launched two-three new product lines into the market. We have invested into brand building around that. And this investment cycle is likely to continue into near future.So, we are very happy with where we are and that is better reflected on the cash flow side of it. So, if you look at our cash flow and if you were to consider all of our operating cash flows is net of any investments because they are all organic. After the full investments we have had operating cash flows of 22.5 percent in this quarter and 21.5 for the full year. So, in the year we have added about Rs 10,000 crore to our cash and cash in hand after paying dividends of about Rs 9,000 crore odd. So, very good performance. The investments are very profitable.Margins are likely to remain more volatile especially on a quarter-on-quarter (Q-o-Q) basis as we go through this investment cycle and it is only when we get to a more static and more mature side that we will be able to make these linear projections saying that currency has depreciated so take whatever was there and add the currency. We are likely to be in a much more dynamic regime on the margin side.So, broad margin band which is a more structural band, we are fairly confident but we are likely to be much more volatile on it. When the business mix is more stable you will see it being fairly tight in the middle range on that. As the business mix becomes more volatile you will see us moving around but directionally we are very confident.Reema: In Q1 what will be the impact to wage hikes, if you could quantify that as well as the additional visa cost what impact will it have on your margins?Gopinathan: We don't give guidance for future quarters.Reema: Just for Q1?Gopinathan: To give a good idea the wage hikes that have been announced are pretty much in line with what we have been announcing in the last few years and the visa regimes is also similar. So, if you look at our past period the impact due to it would be very similar to what it has been in the past.Reema: So, 200 bps?Gopinathan: Approximately in that range.Reema: And the visa would be an additional 25 - 30 bps?Gopinathan: It is a net-net, we don\\'t break that out. But it is a joint impact of that.Reema: The worrying bit about the margins is that for the full year margins have actually come down from 26.9 to 26.5 percent if I exclude the impact in FY16 because of the onetime bonus that you all gave, which means that the margins for the full year declined by 40 bps and this is despite a 7 percent rupee depreciation which technically would have aided your margins by 110-120 bps. You are saying that realisations were stable for the full year which means it couldn't have impacted your margins. So, can you explain the margins for us for the full year and going ahead if you don't have the rupee depreciation benefit and you make those investments will it not hurt your margins?Gopinathan: Good question and it goes back to the same question that you had asked. It is about a static world versus a dynamic world. Think about it this way, you started by asking about wage increases. Wage increases in India and core markets are much higher because inflation is much higher and inflation gets reflected on the currency side. So, the currency depreciation, the inflation and wages these all go hand in hand. Taking a static view of keeping everything else constant what happens if this move it is fairly artificial way of looking at it.Seven percent depreciation of the rupee while it might not happen systematically every year as long as your inflation differential stays high you are likely to see sustained pressure on currency side and as long as your inflation stays high you will see sustained pressure on the wages side which will get balanced by the currency side. If your inflation goes down your wage pressures will also go down which will be the regime in which you will see the rupee kind of strengthening. These things will not happen lock step in every quarter but from a longer perspective that is why we said structurally we are very confident about the margin side and then quarterly variations will have to be dealt with as we go along.Shereen: Let me ask you as far as attrition is concerned because that has been coming down and you are coming in at about 15.5 percent this quarter. What more can we expect in terms of being able to bring down attrition rates and also as far as utilisation is concerned how much more can we expect on the utilisation front as well?Mukherjee: Let me first take attrition side. If I look at 15.5 percent this is for me the overall attrition. It is India, it is IT, it is business process outsourcing (BPO), it is all across and it is definitely coming down over the last two quarters, it has been showing a declining trend but it is more if you look at it from the point of view of last year Q4 versus this year Q4 and to the quarterly attrition and there is a 60-70 bps it has come down. So, it is definitely coming down and going forward the way things are where we are at this point in time is going to go down significantly as we go forward. So, that is the reason why we said that taking that into account and also taking into account the automation and the productivity improvement that would drive over a period of time our gross addition as we look at it as far as next year is concerned is going to be lower or significantly lower than what we have done this year. This year gross addition is the highest that we had done in our history. So, that is from the attritions point of view.As far as the utilisation side is concerned it primarily depends on in a way what Rajesh was talking about, it is in terms of the investments that we want to make. And investment means you have to also have people who are doing some internal engagements, who are doing product development, who are being trained and a number of things. That could drive the utilisation number to a great extent because utilisation number what we show is primarily the percent of people who are on customer engagements. It does not mean that the rest are not contributing to the organisation, they are. So, we are pretty confident of utilisation where we are at this point in time and we would definitely like to maintain it at this level or improve it further as we go forward.Shereen: I tried to ask Mr Chandrasekaran if he saw any fresh headwinds because he believes that a lot of headwinds that you had listed out in the previous year have now been addressed and have been dealt with. But what about the regulatory risk at this point in time specifically in countries like the US, you have got the presidential elections, the rhetoric around the visa regime so on and so forth has already picked up momentum. Would that not qualify at this point in time as a significant risk for you?Mukherjee: From a risk point of view this is definitely a risk and from our risk identification point of view, based on our governance structure we do identify that as a risk and we do have our mitigation plan as well.Shereen: So, what would the mitigation plan entail?Mukherjee: For example let us say dependency on visa should definitely go down as you go forward, your local hiring has to go up. Productivity has to improve, more and more digital kind of engagements that are coming in. At the same time the kind of activity that we are doing within for example US in terms of developing the talent from a CSR perspective the go IT and all these programs that we are doing multiple things that we do. So, these are things that you have to take into account as you go forward.However from an election point of view some of these things are not in your control and you have to deal with it, you have to have your plans in place and as you have been saying all along from a visa perspective also it depends on how rigorous your plan is from a workforce planning point of view and we have been pretty rigorous and we have been doing that over a period of time.Reema: Coming to BFS and BFSI. BFS growth on constant currency was about 14.8 percent; if I include insurance it’s still a 11-12 percent constant currency growth in FY16. Given the channel check suggested that clients have actually cut down BFSI budget, but your numbers don’t seem to indicate that. Could you give us a sense about the client budget spends, discretionary spends will be for this year.Gopinathan: There is no taking away from the fact that at an aggregate level banking continues to be a sector that is under a lot of stress, but if you were to go back and down into it and look at what are the structural things that banks are doing. They are actually doubling down their investment into technology so as long as you have the right services, right product-mix and you are engaged at the right level there is huge amount of opportunity because while the overall cost at the banking industry level is likely to come down. It’s much more likely that technology as a total percentage of cost will increase and it is in that increasing market share that we are playing and we are seeing the differential, so we had spoken about this consistently seeing that sectoral stress does not automatically translate down into opportunity loss. It is in fact a huge inflection point where you are likely to see even more leverage of technology as they try to get the cost structures realign to the new reality of what they are working with. So we are very excited most of them are around investment mould, most of them are restructuring the cost base and we are part of their solution and we are participating in that to much greater extent.Shereen: Let me just take that point forward and I was asking Chandra this as well which is something that we discussed in the previous quarters that you did see problems especially as far as deal finalisation was concerned in specific geographies particularly in Japan for instance. Are you seen that play out in any other geographies at this point in time which are taking longer to close out the deals.Gopinathan: Japan is likely. In Japan we are in very early stage that’s a fairly long one. Reema: Coming to BFS and BFSI. BFS growth on constant currency was about 14.8 percent; if I include insurance it’s still a 11-12 percent constant currency growth in FY16. Given the channel check suggested that clients have actually cut down BFSI budget, but your numbers don’t seem to indicate that. Could you give us a sense about the client budget spends, discretionary spends will be for this year.Gopinathan: There is no taking away from the fact that at an aggregate level banking continues to be a sector that is under a lot of stress, but if you were to go back and down into it and look at what are the structural things that banks are doing. They are actually doubling down their investment into technology so as long as you have the right services, right product-mix and you are engaged at the right level there is huge amount of opportunity because while the overall cost at the banking industry level is likely to come down. It’s much more likely that technology as a total percentage of cost will increase and it is in that increasing market share that we are playing and we are seeing the differential, so we had spoken about this consistently seeing that sectoral stress does not automatically translate down into opportunity loss. It is in fact a huge inflection point where you are likely to see even more leverage of technology as they try to get the cost structures realign to the new reality of what they are working with. So we are very excited most of them are around investment mould, most of them are restructuring the cost base and we are part of their solution and we are participating in that to much greater extent._PAGEBREAK_Shereen: Let me just take that point forward and I was asking Chandra this as well which is something that we discussed in the previous quarters that you did see problems especially as far as deal finalisation was concerned in specific geographies particularly in Japan for instance. Are you seen that play out in any other geographies at this point in time which are taking longer to close out the deals.Gopinathan: Japan is likely. In Japan we are in very early stage that’s a fairly long one. Shereen: Aside of Japan. That’s already identified as a pain point.Gopinathan: Outside of Japan, Indian, Latin America (LatAm) these are volatile geographies. Other than that actually the core geography the US is coming back quite strongly and Continental Europe is also doing quite well absence of any major economic structural problem, we think Europe will continue to do well and as we go through the weakness in Diligenta we feel UK should come through. UK will obviously have some volatility given the uncertainty surrounding that market but once the specific event is passed we think that it will stabilise and show a decent growth. So we see good demand environments in all these core markets and its in the nature of emerging markets that they are more volatile.Reema: Till FY15 you were leading the industry in terms of revenue growth, you were not in FY16. In FY17 do you believe TCS will go back to industry leading revenue growth?Gopinathan: We believe that we have been on industry leading path for some time. Let’s put it this way rather than that as I said we will stay from ever giving you a specific number. If somebody puts out a threshold number I will not comment because that sets up the number, so we are not going waste time pinpointing that. We are confident as I said, the demand environment seems to be good and it is good in the core market both from the vertical industry side as well as from the geography side. So it’s a good year, we are exiting strongly and we will wait and see how it turns out.Shereen: Let me ask this to both of you, Chandra also talked about the fact that you starting the year with stronger momentum. What you believe that changed in the operating environment. What would you attribute is the key triggers or the key factors that has changed in the operating environment today.Mukherjee: See operating environment if you look at from the deals point of you the kind of large deals, the kind of our customer segment movement if you look at it. This has been pretty strong. Also the digital side the way it is playing out its playing out the way we had anticipated and it is more and more of digital work that has been done and people are investing in that area. Be it the banks or be it in any other industry vertical itself. And as we have said that is going to be all permitting in all industry verticals, so given that the confidence level is pretty good. So that’s where I would stop and not go into specific qualitative commentary on whether it is better or whether it is not better and things like that. But we are pretty confident as things are at this point and time.Shereen: But given the big bet on the digital side and it has grown perhaps even higher than your own anticipation the digital side of your business and you were talking about the new investments that you are making largely to sort of beef up capabilities on the digital side. Do you believe that we can expect the same sort of run-rate the USD 250 that you have done in this quarter in terms of investments largely on new markets and digital business to continue to be the kind of ballpark figure we should work with or if you were to look at inorganic growth on the digital side that number could look very different.Gopinathan: USD 250 million is for the year not for the quarter and very difficult to today say because we are constantly looking at inorganic opportunities, but we balance that in terms of what is benefit versus the speed and can we do that organically or is it worth the time to market to be taking it up inorganically, very difficult to take a call. Let me say, we are totally agnostic to where it comes from as long as we get it at the right price point and we believe that it is worth the investment. Otherwise, our organic investments will continue afresh because we believe it’s a multi-year phenomena and you see us in an investment mode well into the next few years.Reema: How much higher is the order book compare to what it was say a year ago as well as what the deal pipeline is. Can you quantify it or compare it to what it was say a quarter or a year ago to let us know qualitatively how it stands.Gopinathan: Qualitatively it is stronger, quantitatively I will not give it to you but qualitatively it is stronger both in terms of volume as well as in terms of where it is coming from and therefore the confident that we are attaching to it and that’s why we had said that when we spoke about BFS also, we look at it we don’t see a problem we see a strong pipeline. How it will translate everybody needs to wait and see how its translate but when we look at it we see strong demand momentum and we think that will continue through the year.Reema: Considering that performance has not been industry leading in FY16 not just say to one peer Infosys, but report suggest that or analyst projections are that HCL Technologies growth could also be higher than your company. Has there been any loss in market share.Gopinathan: No, as we look at it in terms of absolute size and absolute difference we are constantly increasing our gap to almost every industry participants if you look at the actual gap and that’s a good measure of it and then if you actually look at it down to in terms of profitability and cash etc, we are way ahead of anybody, so we are fairly confident about maintaining that industry status and we are exiting at a 21.5 percent cash after a strong investment cycle. It will take some time for others to catch up with that.Reema: Double digit volume growth that you have seen in digital, will that continue?Gopinathan: I would think so. I wouldn’t want to comment on it but definitely considering where it is and the kind of stuff - quarter on quarter it might change but it is likely to continue.Mukherjee: Everything will become digital over a period of time. That is the area that has to grow.Gopinathan: Adoption is just massive across. Shereen: In the last quarter N Chandrasekaran said that FY17 presents excellent opportunity specially as far as shared economy is concerned and shared insight economy is concerned. Any new areas that you are going to be going after, that look interesting at this point in time besides the ones that you are already in today?Gopinathan: If you look almost every vertical what you find is that the extent of value creation by the client on leveraging software services is continuously increasing. You might call it analytics, you might call it insight or you can call it digitisation of service delivery. So, it can be a industry like automobile where entertainment systems and segmentation based on digital preferences of customers is driving growth and market share gains for customers. So, it is coming across. It is not just about let say software industries like banking which are anyway digital in nature. However in more core industries like retail, in manufacturing, in healthcare, in travel you find this permeating across. So, we continue to see the whole digitisation of core economy, that being the primary differentiator and the primary value driver for our clients across a very wide spectrum of industries.Reema: Will you hold on to your margin band of 26-28 percent even if the market environment demands greater investments? You are already at the lower end of the margin band. So say through the course of the year you realise that you need to make greater investments, will you then me okay to dip below the 26 percent mark?Gopinathan: Business growth and investments or whatever it takes, that takes precedence over everything. We are not wedded to anything. It is more a call about trying to get - give you a feel for where the business is. When you say that structurally we think that we are in a fairly stable one, we believe that we can do it but lets say a huge opportunity comes around and that requires significant investments we wouldn’t think twice before doing it. So, in the absence of a guidance it is our way of communicating to you as to where we see the future. We will aggressively pursue every opportunity that we see.Shereen: What are the challenges that you foresee in the year ahead specially as far as being able to for instance keep the attrition down? Are we likely then perhaps to also see a scenario of higher wage hikes?Mukherjee: Wage hike as far as this year is concerned, we have already announced. Wage hike that we are giving is pretty good. Going forward I think from a managing attrition side primarily it is, people would stay provided they see that the quality of the work that they do is pretty good and it is continuously challenging and every day that they come in they continue to do good work and they continue to see that yes this is adding something to my own capabilities, my own competencies and my own CV in a way.So, the challenge would be how do we continuously ensure that people are getting the right quality of work, they don't get stuck into something which continuously repeats every year. If you are doing something for five years, it is not that you have five years of experience, you have one year of experience multiplied five times. So, for us the process that we have where we continuously rotate people across projects, they get to work on different technologies, they get to work on different domains, different countries. So, all these things will play out and that is what we do. That will be our rigour and that will be the focus going forward.Shereen: Would you need to provide for the USD 940 million fine at this point in time or will it be part of your contingent liabilities, how is that going to play out?Gopinathan: It is part of our contingent liability. So, you will find that in the contingent liability and we have given a full disclosure to it. As it proceeds and depending on how things turn out we will be continuously assessing it and deciding whether a provision is warranted or not. As of this quarter we have put it in contingent liability and given full disclosure to it. Outside of Japan, Indian, Latin America (LatAm) these are volatile geographies. Other than that actually the core geography the US is coming back quite strongly and Continental Europe is also doing quite well absence of any major economic structural problem, we think Europe will continue to do well and as we go through the weakness in Diligenta we feel UK should come through. UK will obviously have some volatility given the uncertainty surrounding that market but once the specific event is passed we think that it will stabilise and show a decent growth. So we see good demand environments in all these core markets and its in the nature of emerging markets that they are more volatile.Reema: Till FY15 you were leading the industry in terms of revenue growth, you were not in FY16. In FY17 do you believe TCS will go back to industry leading revenue growth?Gopinathan: We believe that we have been on industry leading path for some time. Let’s put it this way rather than that as I said we will stay from ever giving you a specific number. If somebody puts out a threshold number I will not comment because that sets up the number, so we are not going waste time pinpointing that. We are confident as I said, the demand environment seems to be good and it is good in the core market both from the vertical industry side as well as from the geography side. So it’s a good year, we are exiting strongly and we will wait and see how it turns out.Shereen: Let me ask this to both of you, Chandra also talked about the fact that you starting the year with stronger momentum. What you believe that changed in the operating environment. What would you attribute is the key triggers or the key factors that has changed in the operating environment today.Mukherjee: See operating environment if you look at from the deals point of you the kind of large deals, the kind of our customer segment movement if you look at it. This has been pretty strong. Also the digital side the way it is playing out its playing out the way we had anticipated and it is more and more of digital work that has been done and people are investing in that area. Be it the banks or be it in any other industry vertical itself. And as we have said that is going to be all permitting in all industry verticals, so given that the confidence level is pretty good. So that’s where I would stop and not go into specific qualitative commentary on whether it is better or whether it is not better and things like that. But we are pretty confident as things are at this point and time.Shereen: But given the big bet on the digital side and it has grown perhaps even higher than your own anticipation the digital side of your business and you were talking about the new investments that you are making largely to sort of beef up capabilities on the digital side. Do you believe that we can expect the same sort of run-rate the USD 250 that you have done in this quarter in terms of investments largely on new markets and digital business to continue to be the kind of ballpark figure we should work with or if you were to look at inorganic growth on the digital side that number could look very different.Gopinathan: USD 250 million is for the year not for the quarter and very difficult to today say because we are constantly looking at inorganic opportunities, but we balance that in terms of what is benefit versus the speed and can we do that organically or is it worth the time to market to be taking it up inorganically, very difficult to take a call. Let me say, we are totally agnostic to where it comes from as long as we get it at the right price point and we believe that it is worth the investment. Otherwise, our organic investments will continue afresh because we believe it’s a multi-year phenomena and you see us in an investment mode well into the next few years.Reema: How much higher is the order book compare to what it was say a year ago as well as what the deal pipeline is. Can you quantify it or compare it to what it was say a quarter or a year ago to let us know qualitatively how it stands.Gopinathan: Qualitatively it is stronger, quantitatively I will not give it to you but qualitatively it is stronger both in terms of volume as well as in terms of where it is coming from and therefore the confident that we are attaching to it and that’s why we had said that when we spoke about BFS also, we look at it we don’t see a problem we see a strong pipeline. How it will translate everybody needs to wait and see how its translate but when we look at it we see strong demand momentum and we think that will continue through the year.Reema: Considering that performance has not been industry leading in FY16 not just say to one peer Infosys, but report suggest that or analyst projections are that HCL Technologies growth could also be higher than your company. Has there been any loss in market share.Gopinathan: No, as we look at it in terms of absolute size and absolute difference we are constantly increasing our gap to almost every industry participants if you look at the actual gap and that’s a good measure of it and then if you actually look at it down to in terms of profitability and cash etc, we are way ahead of anybody, so we are fairly confident about maintaining that industry status and we are exiting at a 21.5 percent cash after a strong investment cycle. It will take some time for others to catch up with that.Reema: Double digit volume growth that you have seen in digital, will that continue?Gopinathan: I would think so. I wouldn’t want to comment on it but definitely considering where it is and the kind of stuff - quarter on quarter it might change but it is likely to continue.Mukherjee: Everything will become digital over a period of time. That is the area that has to grow.Gopinathan: Adoption is just massive across. Shereen: In the last quarter N Chandrasekaran said that FY17 presents excellent opportunity specially as far as shared economy is concerned and shared insight economy is concerned. Any new areas that you are going to be going after, that look interesting at this point in time besides the ones that you are already in today?Gopinathan: If you look almost every vertical what you find is that the extent of value creation by the client on leveraging software services is continuously increasing. You might call it analytics, you might call it insight or you can call it digitisation of service delivery. So, it can be a industry like automobile where entertainment systems and segmentation based on digital preferences of customers is driving growth and market share gains for customers. So, it is coming across. It is not just about let say software industries like banking which are anyway digital in nature. However in more core industries like retail, in manufacturing, in healthcare, in travel you find this permeating across. So, we continue to see the whole digitisation of core economy, that being the primary differentiator and the primary value driver for our clients across a very wide spectrum of industries.Reema: Will you hold on to your margin band of 26-28 percent even if the market environment demands greater investments? You are already at the lower end of the margin band. So say through the course of the year you realise that you need to make greater investments, will you then me okay to dip below the 26 percent mark?Gopinathan: Business growth and investments or whatever it takes, that takes precedence over everything. We are not wedded to anything. It is more a call about trying to get - give you a feel for where the business is. When you say that structurally we think that we are in a fairly stable one, we believe that we can do it but lets say a huge opportunity comes around and that requires significant investments we wouldn’t think twice before doing it. So, in the absence of a guidance it is our way of communicating to you as to where we see the future. We will aggressively pursue every opportunity that we see.Shereen: What are the challenges that you foresee in the year ahead specially as far as being able to for instance keep the attrition down? Are we likely then perhaps to also see a scenario of higher wage hikes?Mukherjee: Wage hike as far as this year is concerned, we have already announced. Wage hike that we are giving is pretty good. Going forward I think from a managing attrition side primarily it is, people would stay provided they see that the quality of the work that they do is pretty good and it is continuously challenging and every day that they come in they continue to do good work and they continue to see that yes this is adding something to my own capabilities, my own competencies and my own CV in a way.So, the challenge would be how do we continuously ensure that people are getting the right quality of work, they don't get stuck into something which continuously repeats every year. If you are doing something for five years, it is not that you have five years of experience, you have one year of experience multiplied five times. So, for us the process that we have where we continuously rotate people across projects, they get to work on different technologies, they get to work on different domains, different countries. So, all these things will play out and that is what we do. That will be our rigour and that will be the focus going forward.Shereen: Would you need to provide for the USD 940 million fine at this point in time or will it be part of your contingent liabilities, how is that going to play out?Gopinathan: It is part of our contingent liability. So, you will find that in the contingent liability and we have given a full disclosure to it. As it proceeds and depending on how things turn out we will be continuously assessing it and deciding whether a provision is warranted or not. As of this quarter we have put it in contingent liability and given full disclosure to it.Reema: Coming back to the issue about gross hiring being lower on a Y-o-Y basis. Any numbers, this year 90,000, next year? At least a rough plan?Mukherjee: No, we have not given any numbers out. All that we have said is we have announced the number of trainee hires where the offers are already rolled out which is 45,000 as far as India trainees are concerned and we will have about 32,000 of those joining us that is the anticipation at this point in time estimate. The rest we will calibrate as we go forward. So, next year gross hiring will definitely be down plus as I said the attrition numbers going down, that is one.Secondly, as we are able to get more and more automation benefit we are at an inflexion point where the tools that we have like Ignios and other things that we are doing in order to improve the whole productivity of our teams is going to play out. So, over a period of time you would see the calibration of how we are doing the additions.