Volatility in euro not a major concern

Written by Rachana Khanzode | Updated: Jul 17 2010, 05:34am hrs
Led by a higher volume growth of 8% and improved margins, Tata Consultancy Services (TCS) has reported a jump of 24% in net profit in the first quarter of 2010-11. Though not cautious on the clients front, the firm continues to monitor the currency closely.

S Mahalingam, CFO, says even if the euro become volatile, it isnt going to keep the firm away from focusing on this geography. In an interaction with FEs Rachana Khanzode, he adds that if the double dip occurs, it will only impact the pricing; volumes will continue to remain high. Excerpts:

How do you see the impact of euro volatility on TCS

For TCS, euro has not been a major concern, because only 10% of our revenues come from the continental Europe, while some of the non-continental revenues come from Denmark, Switzerland and Sweden. We had a loss of Rs 27 crore to revenue, but gained Rs 58 crore when rupee appreciated against local currencies. So, it has not been a very big issue. But overall, since it is a diversified business, different currencies matter.

Does that bring any changes in your hedging strategy

We are now taking longer hedging strategy of one year from the earlier two quarters. We had taken some actions in between according to the currency; but now we are comfortable at this level. We have outstanding hedges of around $500 million for the entire year at Rs 46.30. We should be able to deliver with this rate.

With volumes at 8%, do you think double dip could be a possibility. If so, what is the expected impact

We have seen discretionary spending coming back in BFSI, retail and utilities. We have not seen any drop in pricing for nearly six months. By the end of this year, we expect it to go up. However, we are not sure by how much. Companies have pressure on cost and therefore, that should force them to spend on IT. If there is a double dip, they will cut back budgets. And it will not manifest in volume decline but in pricing pressure. There are only some sectors that are looking at discretionary spending. But our clients are comfortable now.

Considering you have used cost efficiency levers to the highest levels, in case there is a pressure on margins, how do you mitigate the impact

Growth in itself is a major lever. We dont have the pricing power and offshore-on site lever as we are at good offshore levels. What we can do is to have better efficiency at fixed price contracts.