To focus on agile, automation & cloud; BFSI to bounce back: TCS

IT major Tata Consultancy Services' fourth quarter (January-March) earnings were mixed as profit fell 2.5 percent sequentially to Rs 6,608 crore on lower-than-expected growth in topline. Revenue during the quarter declined 0.3 percent to Rs 29,642 crore QoQ, dented by subdued growth in key segments like BFSI and retail.

However, revenue in dollar terms increased 1.5 percent to USD 4,452 million compared with previous quarter and grew 1 percent in constant currency.

In an interview to CNBC-TV18, Rajesh Gopinathan, CEO and MD, NG Subramaniam COO, V Ramakrishnan CFO and Ajoyendra Mukherjee Exec VP & Head-Global HR of TCS discuss the fourth quarter performance and the outlook going forward.

"BFSI (banking, financial services & insurance) had negative growth due to cyclical factors and retail industry has been facing structural challenges but we see strong traction in BFSI and expect it to bounce back strongly from cyclic lows in 2018," he said, adding he expects retail to remain volatile & soft through the year," said Rajesh Gopinathan, Chief Executive Officer and Managing Director.

Below is the transcript of their interaction with CNBC-TV18

Q: You gave a breakup of the verticals, could you throw some more light as to by when are you expecting retail to recover? The structural changes in BFSI as well see, to have hit many IT companies. Is there a possibility that the overhang could continue in part, from a contract to contract basis and even the other problem verticals, for instance Diligenta and Japan, while the degrowth has been arrested, by when can you see a pickup in growth there?

Gopinathan: Of the four that you spoke about, BFSI, actually we are quite positive about it. If you think about the last quarter also we had said that we are seeing continuing momentum in BFSI. Insurance continues to do well and in BFSI, what we are seeing is a lot of pipeline for small projects, so the deal momentum is fairly high. But the project sizes are smaller and therefore, some amount of that is translating into volatility in terms of the quarter-on-quarter numbers. But, we met with almost all our key customers in that space and everyone is very clear about the fact that they are positive about the future and they have a very strong investment agenda. So, difficult to say as to when it will be but, BFSI is not a structural problem.

We see them on that investment path and we see strong participation in that. So, it is only a question of how the volumes build up over time. Retail is a more difficult one to call because clearly the industry has structural challenges and many retailers are going through. So, all of them have a digital investment agenda where we are participating, but the structural challenges on the industry is fairly strong. There is a financial stress building up in the industry and we will have to wait and see how that plays out. So, very difficult to say as to when it will come through and it is likely to remain maybe volatile, maybe soft through the year.

Diligenta in Japan, we should see growth into this year. Japan had a degrowth which we are positive or confident that it should probably have some amount of growth. Diligenta, we are confident will have a strong year. We have a very good pipeline in Diligenta. One of them close to signing and in the final stages of contract negotiation and a couple of other deals also which are looking good. So, Diligenta should do quite well through the year unless something very significant goes wrong.

So overall, difficult to quantify but directionally quite strong.

Q: Rajesh mentioned that the coming year should be incrementally positive. From the conversations that you two have had over the last few months, what is the deal pipeline looking like because the fence is that there is no clear visibility and that is the reason why NASSCOM has refrained from giving guidance. but second half visibility will pick up, so where do you stand as far as incremental deal pipeline is concerned this year?

Subramaniam: One is that we have signed certain number of deals over the last six months and they are all ramping up and they should do really well which should augur well for our growth in the coming quarters.

Second is with respect to the pipeline per se, we see a very strong pipeline of larger deals as well as a combination of several small deals, specifically in areas of Agile, automation as well as cloud adoption as the customers are advancing their cloud agenda. So across verticals, across geographies, we see a momentum, our pipeline looks stronger than ever.

Q: There has been an aspirational target of 26-28 percent. Will you revise that downwards because the sense is that pricing pressure, rupee volatility has led to constraints on margins? Is there a need to moderate that guidance?

Ramakrishnan: At this point of time, I do not think we need to moderate that. We certainly believe the 26-28 band is something which we will focus on. We are a tad short in this quarter and the full financial year at 25.7 percent. But the focus is to get to 26 and to work within that band. We have several things which can work towards that.

Q: The attrition has been lowered significantly even if you compare on a year-on-year or quarter-on-quarter on basis. Is it a seasonal factor? How maintainable is that and this is the time of the year that you can give us a target for next year, FY18, can you give us a hiring target, how have the wage hikes been this year?

Mukherjee: One, from an attrition point of view, yes, we are at a pretty good spot at this point in time. A number of initiatives we have taken to build and give opportunities to our people to build their career and to grow within the organisation along with the growth of the business itself, these are paying off.

Similarly, what we announced was the whole training and learning and development related activities that we had embarked on to build digital competencies for our people given the growth that is happening in the digital era, that has definitely given the momentum as far as people are concerned. They are seeing that yes, there is something that they can do, something that they can look forward to and other employee engagement initiatives that we carry out. So, given all these factors that are going on, definitely the attrition levels are low and there is still room to bring it down further. So, I am quite hopeful of that. So, that answers your first question.

As far as hiring is concerned, all I can say at this point in time is yes, we are continuing to hire. As you saw, we hired about 33,000 net as far as this year is concerned. Directionally, this year what we hired, from a gross addition point of view, from 90,000 to 78,000 that has come down. Similarly, directionally going forward, that will come down, but by how much, etc. will be difficult to call at this point in time because it also depends on the attrition to a certain extent. If we are able to retain more in that case, our gross hiring will be less.

At the same time, the kind of talent we are hiring is also going through certain changes at this point in time. There are engineering graduates, there are managements, there are chartered accountants and also with design kind of skills in India, overseas. So the whole mix is changing and we are keeping that in checks and balances. So, we will continue to hire in all geographies, that is the basic message but directionally the number of gross hire will definitely come down.

As far as wage hikes are concerned, this is the time that we announce, yes and we have given a hike. It is not that there is no hike. The hikes again, earlier I used to give an average number across the company overall. That again is becoming, we are changing that because that again becomes very difficult given the kind of different units that we have, given the kind of growth plan that each business unit is coming up with, performance of individuals and all that.

And given the pyramid, the averages are different at different levels of the pyramid. So, all I can say is it will be from mid to high single digit kind of increment that people are going to see on an average at different bands and the letters will be released from tonight onwards. So, people will start getting the letters from tonight.

Q: And this is both onshore and offshore.

Mukherjee: Onsite, the hike will be different. Onsite, it will be from 2-5 percent kind of an average range. That is again going back to the same commentary of different units, vis-à-vis different geographies as well as the different pay bands. But on an average it will be of that order.