Margins can be impacted if Re strengthens

Written by Rachana Khanzode | Updated: Jan 20 2011, 04:49am hrs
Over the last two quarters, Tata Consultancy Services (TCS) has been able to maintain its margins at 28%. However, a fluctuation in the currency could make it difficult for the country's largest IT services and BPO firm to maintain its pace of margins, says its CFO, S Mahalingam. He tells FE's Rachana Khanzode that the firm would wait and watch on the pricing front as some of its clients come out of the woods.

We saw a pricing improvement of 118 bps this quarter. Can we expect further improvement

The pricing improvement has come from three factors, basically the improvement in the portfolio that would include high end services, efficiency in delivery and price negotiations. At the moment, we cannot say when and how much pricing improvement would come from the clients' front, as some of our clients are still coming out of the woods. But we are not witnessing any discounted pricing on the back of increased volume growth.

How sustainable do margins at 28% look like

Our focus has been to maintain margins and even when the currency is not in our favour, we would work out various levers, including the offshore leverage and cost control initiatives. Two years back we undertook rationalisation of our processes including consolidating our offices. That had brought the costs down and brought about 5% improvement in margins. At this point in time, besides the over all cost containment ,we would look at areas like Latin America and China, where we would bring in increased efficiency levels. Besides, the size of the employee base itself gives us a leverage to maintain margins.

Can currency movement play a spoil sport

It is difficult to predict how currency would move. If it remains at Rs 46 to a dollar then it wouldn't be difficult to maintain margins. With the existing current deficit at 4.1% of the GDP and oil prices around $92 a barrel, we would have to watch out on the FII inflows. However, at the start of January 2011, we saw some economists predicting that rupee would appreciate in a narrow band of Rs 44.5-46 per dollar. If the currency moves to Rs 44.5 levels then it would be difficult. Our existing hedging position is at $ 700 million for the quarter.

How do the budgets for the year look like

We are witnessing an upward trend in outsourcing. However, most of the clients are still deciding on how much they would want to spend.