India’s largest software-services company Tata Consultancy Services Ltd has doubled its revenue every two years since crossing the $1billion-in-revenue mark in 2002-03. S. Mahalingam, chief financial officer of the company, spoke to Mint on the challenges facing the now $4 billion-plus-in-revenue company. Excerpts:
What are the operational challenges in maintaining the growth rate from a base of $4 billion?
At the operational level, our first challenge is to maintain the same quality of services across the geographies despite having different cost structures. For instance, selling cost and delivery cost vary from the US to Brazil. But the quality should remain intact as we are acting like a true multinational, and not like a selling organization. The other challenge is to manage synergies between the different services that we offer.
We have invested a lot in becoming a full-services player. We have a clear view of the synergy benefits of this structure. But managing it across the diversified geographies is going to be a challenge in the future. Wage inflation and a volatile rupee are the two other major concerns that the industry at large is facing today.
The cost of employees account for 55% of our total costs and wages have been rising every year. Our challenge is to put in levers to increase productivity and contain other costs. To combat the volatile rupee, we have already hedged export earnings (contracts) worth $1 billion (about Rs4,200 crore) in dollar, pound sterling and euros for a rupee value between 43.5 and 44 for over a year. But it (managing foreign exchange) will continue to remain a challenge in a volatile environment.
When do you expect to turn around your UK subsidiary Diligenta?
We acquired the BPO firm from insurer Pearl Group a year-and-a-half back, and took control of the operations on 1 April 2006. It is already making some level of operational profit. But we would take two more years to transform it completely. In financial year 2009, Diligenta would be adding some more clients and then we expect its performance to increase significantly.
Do you have any plan for merging your Indian subsidiary CMC Ltd with TCS?
We have 51% stake and the management control of CMC. We do not have any proposal or immediate business need to acquire the rest of the stake and merge it with TCS.
Which countries are you looking at for acquisitions?
Out of the 10 over-$50 million deals that we are pursuing, six are in the US. The rest are in Latin America, Asia and the UK.