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Currency headwinds strong, 27% margin sustainable

Currency headwinds strong, 27% margin sustainable
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First Published: Tue, Apr 20 2010. 10 56 PM IST

Optimistic view: CEO N. Chandrasekaran says TCS has good business visibility with a majority of clients for the full year. Abhijit Bhatlekar/Mint
Optimistic view: CEO N. Chandrasekaran says TCS has good business visibility with a majority of clients for the full year. Abhijit Bhatlekar/Mint
Updated: Tue, Apr 20 2010. 10 56 PM IST
Mumbai: Chief executive and managing director of Tata Consultancy Services Ltd (TCS) N. Chandrasekaran explained in an interview what helped boost margins for India’s biggest information technology firm in the fourth quarter. He also discusses the road ahead for the firm and the sector. Edited excerpts:
How is it looking in terms of business visibility?
Overall, the visibility is increasing every month. At the end of Q3 (third quarter) we had said that the cycle is recovering and we expect it to get better in Q4, and it has been so.
What did you hear in terms of IT budgets for fiscal 2011?
With a majority of the customers, we have got a very good visibility for the full year. The only caveat is that on the transformational programmes; it will be more phased. Apart from that, we have a decent visibility, especially for financial services clients, retail, pharmaceutical, utility.
There is some apprehension that in banking, financial services and insurance (BFSI)—a big business segment for you—once mergers and acquisitions start tapering off, business traction might just ebb off.
Optimistic view: CEO N. Chandrasekaran says TCS has good business visibility with a majority of clients for the full year. Abhijit Bhatlekar/Mint
I don’t think so because there are a number of new initiatives that are getting kicked up in the BFSI vertical... Last year, predominantly, we saw growth in the banking side of things—banking and financial services, not insurance—and what has happened in the last quarter is (that) we have started to see momentum in insurance as well. We are seeing a good number of discretionary projects being considered in the BFSI sector, primarily in the areas of multi-channel and risk.
Was Q4 sluggish for BFSI?
Not really. Actually speaking, we had a huge impact due to currency in the euro and the GBP (pound sterling). So that is what we see in the results.
What about application development and maintenance (ADM)?
ADM had a slightly flattish kind of quarter. It’s more to do with infrastructure and BPO (business process outsourcing) doing much better and consulting kicked in.
Were there specific client issues?
There is no specific client or service line issue. We see growth kicking in in almost all the sectors, but in manufacturing and hi-tech, it will be relatively slower growth compared to some other verticals.
You had a good fiscal 2010 in terms of margin expansion. Some people liken it to riding a tiger because you have already gone to 27.5%. On that benchmark of expectations, can you deliver in fiscal 2011?
We don’t give guidance but mainly what we said we should do is to ensure that we get our cost structures optimal. If we go back a year, year-and-half before, we had SG&A (selling, general and administrative expenses) going up to 22%. That is to do with G&A being higher, and also we having opened multiple initiatives both in terms of G&A and entering new markets, etc. What we have done is to prune some of those things and also bring sharper accountability for growth in those kinds of markets. As we invest more and see critical mass building up in...those initiatives, definitely there is some margin upside.
Not all our markets are operating at the same margin levels, especially our emerging markets and new centres that we have been growing over the last couple of years... (these) are definitely operating at a lower margin.
So moving work offshore and SG&A cuts have not milked out all margin upside possibilities in fiscal 2010?
There are always multiple levers when you look at margins. This year the margin expansion has come in spite of 3.5% de-growth in pricing and in realization. Even if we maintain a flat pricing and then look for some upward bias towards the third or fourth quarter, that is another lever...but the wage hike, currency headwinds are strong.
cnbctv18@livemint.com
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First Published: Tue, Apr 20 2010. 10 56 PM IST
More Topics: CNBC-TV18 | N. Chandrasekaran | TCS | Currency | BFSI |