THIS IS CERTAINLY NOT THE GROWTH THAT WE ARE COMFORTABLE WITH AND WE CAN DO MORE. THESE ARE REACHABLE TARGETS AND WE’LL CONTINUE TO WORK TOWARDS THEM”
V RAMAKRISHNAN, TCS CFO
While Tata Consultancy Services (TCS) posted muted growth in the first quarter, the disruption in the retail and banking business due to online commerce and emergence of financial technology firms is an opportunity, says V RAMAKRISHNAN, chief financial officer at TCS, in an interview with Romita Majumdar &
Raghu Krishnan. Edited excerpts:
Can you maintain the guided margins (26-28 per cent) in the coming quarters?
During the quarter salary hikes and currency appreciation had an impact on margins. Salary hikes are always introduced in April, however this year it was 1.5 per cent of revenue compared to two per cent last year. As far as the rupee is concerned, we cannot have much indication on that and it is quite dynamic. Last quarter’s margin was 25.7 per cent and without the salary hike it is 24.2 per cent. In the subsequent quarters we will recover from the salary hike. So in reality the margins are very much on track. How we take it from here to the rest of the year is something that has to be factored in. For instance, we have been very disciplined in terms of our operational expenses, which are very tightly managed. There is always room for improvement in an organisation as vast as ours. This is certainly not the growth that we are comfortable with and we can do more. These are reachable targets and we’ll continue to work towards them.
BFSI and retail have not performed well. What is the way forward?
Discretionary spending from large banks, especially in the US, has been missing. It could be due to the impact of rate increases or infrastructure spending or just regulatory controls. But at the same time, banks are definitely spending in the digital space to improve customer experience and back-end operations. We have a lot of these opportunities. BFSI and retail grew 2 per cent each in this quarter. There are a number of banks where business has grown and a few which have seen degrowth. Turnaround in banking will depend on when the discretionary spending changes. Insurance-wise we have a couple of deals in this quarter which are doing very well and will be closed by Q2. Big-box retailers are undergoing challenges of their own in terms of reorganising business for the digital space or while competing with e-commerce. They are spending on analytics, customer insights and IoT. Retailers are going through financial issues, management change and ownership changes. Some of the volatility will remain in case of big-box retailers.
Are captive businesses cutting into your revenues in retail?
I don't think it is happening in any appreciable manner. Our own digital innovation centre has a number of offerings for retailers. Retail is the sector where maximum digital opportunities are happening. Our own platforms are definitely gaining traction here. We are not seeing any impact on our business due to captives.
Is automation one of the reasons for consolidation across your offices?
Automation and consolidation are unrelated. Consolidation helps to bring together all infrastructure and facilities in one place and for the associates to get maximum exposure and improve efficiency. We have successfully run it in large centres. Automation from a customer perspective makes sense. We are very much engaged in improving efficiency through automation. There is a lot of scope to use automation to improve delivery to customers.
Deal sizes are getting smaller by the day?
It is not that large banks are not spending and our traditional services are definitely continuing.
It's just that discretionary spend has turned more digital in nature with focus on digital enablement, cloud adoption, analytics, insights and so on. Those projects are obviously smaller in size. Once they cross the proof of concept stage there will definitely be more spending there.