Despite reporting a lower quarterly revenues for the March quarter on a sequential basis, Tata Consultancy Services (TCS) registered...
Despite reporting a lower quarterly revenues for the March quarter on a sequential basis, Tata Consultancy Services (TCS) registered a healthy improvement in FY15 revenue and profit . The IT major CFO Rajesh Gopinathan tells FE’s Pranav Nambiar and Rhik Kundu that the company’s performance in the recently concluded fiscal was on a par with some of the biggest corporations of the world as it made inroads into many important markets like Japan, France, and Germany. Excerpts:
Any worries as far as revenues are concerned?
We ended FY15 with incremental revenues of over $2 billion. We performed better than our competition. In fact, our numbers were close to that of the largest companies in the world. We also made inroads into important markets like Japan, France, Germany during the year.
How important is the Japanese market for you?
At present, we are making about $150 million a quarter from our Japanese operations. Japan is currently the second largest market for IT services after the US. We are looking at a sustained market with an eye on long-term growth.
Why do you see a market in Japan which is technologically very developed and sophisticated?
The underlying IT market in Japan is very under-served by Indian players like TCS though it is tightly held by local and regional companies. Currently, Japanese economy is undergoing a transformation with most companies looking to develop an export-oriented strategy. It is a good space for us to be.
You saw a healthy growth in continental Europe. Have you made a turn as far as that geography is concerned?
In FY15, continental Europe contributed 26% constant currency (cc) growth compared to the company average of 17%. While the growth was primarily in the Nordic region and Switzerland, we also saw an increased penetration in France and Germany. We have made frontal investments for both delivery and sales in these geographies. While Europe is subjected to some volatility of its underlying markets, continental Europe is no longer a space we will vacate.
What have you done differently in continental Europe?
It is a combination of ground investments both in terms of delivery and sales. The cumulative benefits of persistence sales have served us well. We have taken small projects from customers and demonstrated ourselves, which over time helped customers understand us better.
Going ahead, considering the financial climate in some of the European countries, do you see the growth level in Europe continuing at the current level?
France has the largest number of Fortune 500 companies after the US, while Germany has the largest current account surplus. The Nordic region have been at the forefront of technology adaption and innovation. The opportunities in these markets are huge.
What is the nature of the spends there? Is it for growth or for efficiency?
In a lot of European markets, it is a combination of both growth and efficiency. European companies are realising they need to be globally competitive because their home markets are in a bad shape in the short to medium term. In doing so, they need to be marginally competitive with the global players as well as from the cost-point perspective. Our value proposition is an aberration of both. TCS offers a very competitive price point than the traditional vendors who are logged into cost structures.
What is average range of deals in Europe?
I would say a third of the large deals last year came from Europe as it is a large deal-driven market as opposed to the US. We expect this trend to continue because this is primarily an outsourcing demand compared with the US demand which is due to technology shifts, and consists of a lots of small projects.
Are regulations in the US like Obamacare and Dodd-Frank benefiting TCS?
These regulations have two aspects to it — positive and neutral or negative. On the positive side, the US companies have to figure out how they will become complaint (towards the regulations). The path towards compliance is a technologically leveraged path with some approaching it as analytic projects, some as system rebuilding projects, while others through placement and simplifications. The second part is the big theme around capital adequacy. More and more capital of these companies are getting locked up which has left them with very little to invest in expansion.