Demand outlook could be a company-specific issue: Zensar

Below is the transcript of Ganesh Natarajan & Vibhor Singhal’s interview with Ekta Batra, Reema Tendulkar & Anuj Singhal on CNBC-TV18.Anuj: Do you think it is a Tata Consultancy Services (TCS) specific issue or in general there is some sense of a bit of slow down in terms of IT demand and is that something that investor should be worried about for all companies?Natarajan: I do not think there is anything to be worried about. I really haven’t heard on what TCS has said so I can not comment on any company. However, if you look at the demand environment, what is happening is that the nature of demand is changing. In fact Gartner has called it adaptive sourcing where companies are now looking at specific companies for their traditional business as usual which is what the Chief Information Officer (CIO) does. Then they have differentiated sourcing for instances chief marketing officers, chief operating officers are now talking to us directly for technology. Then there is innovation all the stuff that you hear about chief digital officers etc. What is important to understand is that they will be different buying points in an organisation and any company I am sure most of us our completely aware of this any company which is able to cater to all three of this meaning doing innovate technology, differentiated technology and the traditional business as usual will continue to succeed. There is concern about, the economies are not dong particularly well but if you look at US which is most of us are focused or Zensar itself US, Europe and Africa I think there is enough demand there. You just have to cater to the new needs and you will be successful.

Ekta: From the start of the year to now you are not less optimistic. Are you the same or are you more optimistic?Natarajan: I am certainly more optimistic for Zensar because the signs we are seeing in our three business area which is ERP, infrastructure management and application management and to top the icing on a cake you have very good digital transformation, ecommerce and retail commerce. So given the nature of our business we are definitely more optimistic. Talking from an industry point of view I don not think there is any need for any alarm bells I think there is still lot of opportunity for innovative companies and you will continue to see success. Reema: What TCS said is that the company was more optimistic at the beginning of the year compared to now and that momentum has slackened. What explains this commentary that TCS management had to give us after sounding robust for the past so many quarters versus what you have to say?Natarajan: You have to ask my friend N. Chandra because I do not want to step into his shoes. So, it is really company specific and they may have specific client related issues but I am speaking on behalf of industry. We are just coming out of a strategy meet which happened just two weeks back. I didn’t see anybody saying that look it is going to be worse this year. Next year is a different ballgame so we will have to see how economy shape up and most of our economies are obviously, Europe is bit of a issue for most people but again even in Europe if you focus on the right segments like we are very focused on government and retail that is continuing to grow. So, I really see absolutely no reason for any kind of negativism. On the contrary many areas we are seeing a substantial uptake in demand and what people are talking about in terms of conversations.

Anuj: Is the street getting unduly worried is this a bit of an overreaction or do you think it is time to get cautious especially on TCS?Singhal: I am not too sure if it is time to get cautious on the IT sector because I don not think there is anything that TCS said in the commentary was something which was not expected. The cross currency impact was anyways expected that in this quarter, this will be very meaningful for all the companies. So it is just that TCS has called it out first because they happen to do quarterly preview meet. I am sure you will see the similar impact in the results of all the IT companies when the report results next month. So, this was the kind of impact which was anyways expected and if you see the overall commentary of TCS is only that they probably they missed the revenue in the last quarter by around USD 25-30 million and they might not be able to make for it in the remaining quarter because Q3 is a seasonally week quarter and Q4 is a little far ahead for them to be able to predict whether they will be able to catch on it. So, on that front that might be slightly pessimistic but overall I don’t think that management sounded very pessimistic or overall scheme of things looking down from last year perspective. We still believe that the industry is headed for a strong growth in this year and the relative positioning of the sector still remains strong with TCS leading away.

Ekta: Can you just give us a sense on whether you have changed you estimates for this quarter for Q3 for TCS at all post the analysis meet and what would your estimates be?Singhal: Post the analysis meet the reported revenue in US dollars would definitely change so it was around 3.5 percent before so that would probably come down to around say 1 to 1.5 percent because there is a 220 basis of points of cross currency impact. However, important thing is that as the management guided that the impact on INR will be only 20 basis points. So, net-net I don not think there is going to be a significant impact on the earnings per share (EPS) or the quarter or for the full year. Reema: What will be the impact of cross currency on Zensar Technologies dollar revenue as well as on the margins?Natarajan: It is early days yet and we really haven’t got an estimate at this point of time. However, the important point that he made was that seasonally it is a weak quarter because lot of customers furloughs happen and there are holidays etc but I was looking more at the medium-term. If you look at the whole year FY15 and the FY16 the demand environment is fine. You will keep seeing this quarterly wobbling here and there. However, I do not see any reason to worry as I mentioned before.