Adoption of cloud to reimagine processes within the company and drive efficiencies is also on the rise, so the margins should remain resilient.
V Ramakrishnan, CFO, TCS
Tata Consultancy Services (TCS) has reported a stellar set of numbers for the December 2020 quarter – the strongest growth in the last nine years. V Ramakrishnan, CFO, TCS, tells Shubhra Tandon during an interview that there are indicators to suggest the growth is sustainable.Excerpts:
Despite salary hikes being rolled out, margins were strong…
The biggest factor driving margins is growth which was seen across verticals. But more importantly, the ability of people to work from anywhere also increased the fungibility. So, if you are driving efficiencies, they translate into gains. Also, we continued to be disciplined in other areas of discretionary spending. Currency also was benign in the quarter, which is important.
Will this margin growth sustain in the coming quarters as well? We are seeing the growth momentum and believe this will sustain since the deal pipeline is healthy. The potential is visible as multiple industries are fortifying and reiterating the benefits of technology adoption. Adoption of cloud to reimagine processes within the company and drive efficiencies is also on the rise, so the margins should remain resilient.
Has the pandemic had an impact on the IT budgets of clients? Are there any cutbacks? Technology is in such a place that it is no longer just an IT solution but about helping companies find uses. Firms like us provide those technology-led solutions for business problems, reimagining business models, the way they design their products, services and supply chain etc. So, it is ongoing and as important as areas of cost optimisation and driving efficiencies. Also, decisions on budgets are made through the year. However, wherever they follow the calendar year as the financial year, it is only in the next few months that budgets will be finalised and discussed, so it is a little early to comment.
The Indian market grew sharply during the quarter at about 18%. What were the levers for this growth and is it sustainable? One has to look at the growth number on the back of a near 25% decline in Q1 and 5% or so in Q2 . So, when you have had such a trough, the rebound is expected to be sharp. Also, businesses in India are more project-driven and are always lumpy. More importantly, some of the transactional-based services like technology-based assessments for multiple competitive examinations were not happening in the last few quarters as exams were held back due to the lockdown. That has come back. Other projects like processing of passports etc which is linked to transactions, the activity has come back. The opportunities are really good and seeing the uptick in the business activity, we are quite optimistic on growth.
What is the sense on other geographies? Are we seeing levers for growth? Overall, in the next 12-15 months, we see double-digit growth at a company level as a realm of possibility.
Some countries, including the UK, have announced fresh lockdowns… It is true we are not out of the woods but we are hopeful that these lockdowns will be much more short-lived than in the past. We may see an impact (on customer decision making) in the UK context. It is not still as pronounced in the other geographies, but it is a fact definitely to be kept in mind.
What’s the demand outlook for the rest of the year and going into 21-22? Our pipeline is strong and well-distributed across geographies and across various service lines; that gives a lot of confidence. Also, from the deal signing perspective, on a continuous basis we have been seeing deal flows, so I think these are all good indicators.
The total contract value (TCV) number was strong in Q3. Do you see this continuing for small, mid-sized and large deals? There are some large deals in the pipeline and some are transformational in nature. However, the timing of signing of deals is a little difficult to predict because many of them have long sales cycle and go through multiple layers of due diligence in the customer organisation. At the same time, we continue to see small and medium-sized deals getting concluded regularly, while large deals will be lumpy.