Domestic biz unaffected by India slowdown, says V Ramakrishnan

Though short term numbers are important but they are more specific to isolated pockets.

Due to Brexit, some level of uncertainty had crept into the decision making with clients but the signals are clear.
V Ramakrishnan, CFO and Milind Lakkad, EVP & Global Head HR, TCS say that TCS going forward will focus on two things i.e. increasing our base and re-skilling our middle management. This would be the theme not just for the next quarter or two quarters, but for the foreseeable future, they added. Edited excerpts from their interaction with ET NOW’s Managing Editor Nikunj Dalmia:

Nikunj Dalmia: From the last two quarters the wow factor is missing from TCS numbers. You will defend by saying that TCS is still growing. But my argument is that if I do a relative comparison, others are saying they are coming back, TCS is saying I am slowing down. Ehat has bothered you in the last two quarters that you suddenly have slipped a bit from where you were?

V Ramakrishnan: From a strategy perspective, we are very focussed and consistent with what we are doing. The strategy is essentially to build capabilities in cutting edge technologies at scale, get our own teams very focussed on getting the skills themselves, and also on the adoption of Agile technologies in a big way, which helps our clients significantly and also drive a lot of efficiency into the process. We also focus on building the intellectual property around our products or platforms and sales led to the whole portfolio of services. So all these enablers we are very focussed and there is no movement away from there. Now, performance in the short term will also be factored by what happens in different sectors in different geographies.


In the medium and long term, we stay very bullish on the prospects for this industry and prospects for what we are doing in particular because on multiple fonts our strategy is geared towards where we can participate in the growth and transformation agendas for our customers. And we are increasingly doing that. In the short term, it is more buffeted by what happens in a particular sector and we have been talking about a little softness in both the BFSI and retail space. So that is how you will have to look at it. It is difficult to do a relative comparison with others because each is on a different trajectory or their own strategies on organic versus inorganic are also different. But I am staying focussed on ourselves. When we look at some of these sectors, they are more confined to either a certain geography or a certain sub-segment within those. But these are the big sectors and that is why we are seeing a slightly lower growth than what we ourselves targeted, what we expected and what market participants also look at from us.

Nikunj Dalmia: How will you soothe the nerves of the market? When we started the current financial year it was almost a given that TCS will grow at 10% or in double digits. Now, it would be difficult for you to grow at 10% looking at what the exit rate is and what you are indicating for the current quarter. When do you think growth will come back? How much of the slowdown is cyclical and how much of that is structural?

V Ramakrishnan: You are right. Double-digit growth in this financial is probably not on the cards at all. But if you look at the deal wins and the TCV in each quarter, that has been significant and has not slowed down. In the last three quarters, we have had about $18 billion of deal signings, so that is an important metric. And if we break it down into some of our services and on the platforms like Ignio or in the banks -- one has to disaggregate and look at where the core strength of the organisation lies and that is in the technology space, technology agnostic or platform agnostic, where you can participate and create the solutions for your customers and help them in their growth and transformation.
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Though short term numbers are very important but they are more specific to isolated pockets.

Nikunj Dalmia: There is a change in the headcount number -- 4000. It is not a large number on that large base. I just want to understand what that number is all about?

Milind Lakkad: If you look at the last three quarters, our headcount increase is about 22,400 and if you compare it with the last year’s last three quarters it is similar. It is that the distribution of 22,400 across three quarters is different this year compared with last year. There is no material change otherwise.

Nikunj Dalmia: The attrition rate normally is not settled, 10-12 is where the band is. Will it settle there for this year?

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Milind Lakkad: If you look at the attrition rate, our absolute number on attrition is less than the Q1 absolute attrition number. The number looks higher because the denominator is lower and that’s why I am not worried about that at all.

Nikunj Dalmia: This slowdown will not impact any of your hiring plans for the coming year?

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Milind Lakkad: Absolutely not. We actually have offered 39,000 offers through our TNQT this year already. So, that reflects on our medium and longer term… the fact that it will grow. We have already made investments towards that.

Nikunj Dalmia: In the last 10 years the rupee has depreciated by more than 50% and that has been a serious tailwind for IT companies. I do not know what would happen to rupee in this decade but if one works with an assumption that rupee remains stable for this quarter, then what happens to margins for TCS?

V Ramakrishnan: One should not look at it just purely as a tailwind or headwind. Rupee depreciation is intrinsic to our model. We have explained in past interactions as well. We primarily serve customers in multiple markets where the inflation is very benign, whereas we serve from markets or geographies where the inflation is much higher. And your pricing to some extent linked to the inflation in the countries where you serve the customer base. This means your cost will go up in line with inflation in the countries where you are operating from and you are servicing from largely. So that difference has to be made up by currency depreciation and one should not look at it in a way that okay if currency has depreciated by 50%, then 50% is directly dropping down to your bottom line. One should strip that away and then look at the core performance. I think that is a little fallacy because that 50% or whatever that number is, it is actually helping you make sure that your cost structures are met. So, if there is a mismatch, and there will be mismatches, it cannot be a perfect set in every quarter but on a long term basis, currency is just one more factor. In the short term, on quarter-to-quarter or on a half yearly basis, etc. you will have those gyrations driven by currency as well.

Nikunj Dalmia: Let us talk about the India business, the small business. A) there has been an economic slowdown, b) there has been a disruption in the financial space in India and now telecom is the latest challenge. Could that start impacting the profitability of your India business in the next one more quarter?

V Ramakrishnan: Our India business is no longer small. In absolute terms, it is a very healthy number; many large programs are being run by the government across multiple dimensions, and we are participating in many of them. Apart from that, large corporations are also engaged on the growth and transformation front while they are engaged in cost optimisation. We engage with them as well, of course, it is sectoral. In fact if some of the sectors face a challenge, then technology is an enabler for them to tide over those economic challenges as well. From a profitability perspective, I cannot share specific numbers bu we have significantly improved in our domestic business over the years.

Nikunj Dalmia: So there is no stress in the domestic business given what is happening to the economy?

V Ramakrishnan: Absolutely.

Nikunj Dalmia: Are there any significant levers which are going to be at play in the coming quarters on the employee front? While it is a work in progress, you are always innovating on it, but sometimes you read about a J-curve. In the next three, four quarters, are there any significant innovations on the utilisation front, productivity front which could surprise us?

Milind Lakkad: I will not specifically talk about utilisation or productivity but I will tell you that we have already given 39,000 offers. We will spread it out the way we did last year. We will decide in a month or so on how we are going to do this; that aspect will remain the same. We will continue to basically do two things – increase our base and re-skill our middle management. This would be the theme not just for the next quarter or two quarters, but for the foreseeable future.

Nikunj Dalmia: Brexit and US elections: Two factors will be at play; should we expect volatility because of these two events?

V Ramakrishnan: Due to Brexit, some level of uncertainty had crept into the decision making with clients but the signals are clear. At least, the uncertainty factor around Brexit is now easing up. Of course, the nuts and bolts of it will be actually ironed out over the next 10 to 12 months and that is important in terms of what implications it has for clients and their own strategies and in terms of how they manage their supply chain and stuff like that. One has to wait and watch how US elections pan out. We are not seeing anything to call out from a demand perspective right now.

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