Target 15-17% NIMs; no TCS merger as of now: CMC

After delivering 15.8 percent margins in its Q2 earnings, CMC is now aiming at margins between 15-17 percent in the upcoming quarters, says R Ramanan, managing director and chief executive officer.

Speaking to CNBC-TV18 on the Q2 earnings, Ramanan says the company’s revenues tend to be lumpy due to system integration projects. But on a positive note, Ramanan says the company continues to grow well in the international markets.

Additionally, Ramanan says there are no talks about a merger with Tata Consultancy Services (TCS) as they continue to have a great synergy with the IT major. CMC is a subsidiary of TCS.

Below is the edited transcript of Ramanan’s interview to CNBC-TV18.

Q: Revenue growth has been very lumpy for you, Q1 revenues were down 7 percent, this quarter was up 15 percent. What can investors expect for the full year by way of revenue growth?

A: We don't give forward guidance normally and in our business, a certain amount of lumpiness on a quarterly basis is to be expected because we are a system engineering and integration organization and there is a whole lot of project driven revenues that kick in during different parts of a quarter. Hence, in a particular quarter even if we have one major assignment, depending upon milestones and depending upon the billings, the revenue patterns can change.

Overall, over the last several years we have been focusing on value adding solutions and services which enables us to have a sustained revenue growth as well as a sustained revenue pattern. Even during this quarter, as in the last quarter, we have maintained a 92-93 percent solutions and services mix and this is really the trend that we constantly keep focusing on and trying to ensure that CMC is in that segment of the business.

We have also been consistently growing in the international market. That has been a focus area for the company and that focus area continues to yield us good dividends both in terms of the wins that we are having as well as the quality of the revenues and the business mix that we are focusing on.

Q: Margins have been static at 15.8 percent, is there scope to increase the margins especially in light of the currency depreciation?

A: We have been saying constantly that we would like to focus in the 15-17 percent margin because we are in a period of growth and investment is an important aspect of our growth strategy. So, we continue to invest in creating some good products and innovative products in the segments that we are in. Therefore we have said that we would like to operate in the 15-17 percent. We have improved upon our margins even during this quarter to 15.8 percent and during this quarter we have also provided for salary hikes which normally we do during the month of July. So, that has also been provided in this quarter. What one sees is margins after all of those things have been taken into consideration.

Q: What was the impact of the wage hikes on the margins this quarter if you could just quantify it in 1 percent etc?

A: That would have an impact of at least 70-80 bps on the margins.

Q: The next quarter there is not going to be any wage hike so in the absence of wage hike could we expect your next quarter margins to be higher by 70-80 bps?

A: We have been focusing on growth and trying to maintain our margins between the 15-17 percent. We are constantly trying to improve our margins, so the effort would be on and so far we have been able to ensure that the quality of the business, the solution service mix is retained above 90 percent and that could continue to be our strategy.

Q: Any plans of merger with Tata Consultancy Services (TCS)?

A: We have had great synergies with TCS and we continue to focus on those synergies. It has both go to market synergies as well as process synergies that we have with TCS.

The arrangement that we have currently with TCS is working fine for both the companies and there has been no talk about a merger or no speculation on that internally atleast. So, things as they stand we are working very well, with strong synergies with TCS, leveraging the global presence of the company and TCS being able to leverage the core competencies as well as the system engineering and integration capability of CMC. So it is an arrangement which is working very well and we continue to focus on that and make it stronger.