How TCS plans to strike it big

For N Chandrasekaran, managing director and chief executive officer of India's largest information technology services provider, Tata Consultancy Services, the fourth quarter and 2010-11 numbers were one of the best since the industry was hit by the recession.

Analysts feel if  TCS, having crossed $8 billion in annual revenue, continues to keep this momentum, it is set for $10 billion in revenues by the end of 2011-12.

In a chat with Business Standard, the MD talks about the future course.

Edited excerpts:

While some of your peers seem stuck in restructuring efforts, TCS has had a fairly smooth ride. Do you think the TCS rejig in 2008 made it better prepared for this growth?

I cannot quantify whether the restructuring helped in the slowdown. But it has been an important factor.

It created focused teams, brought in more customer connect, which has resulted in more opportunities and people getting on to leadership roles.

Having an organisational structure with a very focused leadership and client relationship has helped.

. . .

FY11 has been a record year. Can we expect similar momentum for the next fiscal?

If you look at the last three years, FY11 has been a good year on several parameters.

Our volume growth was 29.6 per cent for the first time in the last three years. Pricing has not gone down.

From a margins perspective, our exit rate for the quarter and the fiscal year has been the best.

The deal pipeline and demand environment we see today is better than what we saw last year.

Of course, we have announced a 12-14 per cent wage hike, one of the highest so far. Moreover, currency (changing value) continues to be a challenge.

As for the client environment, it is guided by what we see in terms of the IT spend among our addressable base.

We have spoken to all the top clients and my addressable spent is increasing by one to four per cent.

And, though we are really strong in the financial sector segment, we are seeing opportunities from sectors like retail, pharma, etc.

. . .

Going ahead, will it be a choice between margins and growth? Will increase in pricing help you maintain these margins?

In the past two years, we've shown its possible to achieve growth with margins.

However, the key to maintaining both is to get volume growth.

The indications are good.

There is no big-bang area to improve margins, but there are productivity improvements  we can bring in certain individual business units.

As for pricing, it will show some uptick.

I do not think it will completely negate every other headwind.

We cannot, at this point, quantify the currency and wage headwinds.

The reason for the pricing increase is because of the demand rising, but also because we have such a holistic offering that is becoming much more value-focused for clients, rather than just cost-focused.

. . .

Discretionary spending is back is what you had said. Could you elaborate?

Our enterprise solutions space has been muted for several quarters.

But if you look at the fourth quarter, we are seeing that deals are giving revenues, projects are getting executed and we are in competition on more deals.

So, the discretionary spend is coming in.

Our consulting business is also growing well.

We are seeing across the board rise in discretionary spend in all sectors. If you take enterprise software, we grew 17 per cent sequentially, one of the best in the last five to six quarters. Of the 17 per cent, I would say around 12 per cent will be pure discretionary spend.

. . .

With the big-bang announcement of iON for the small and medium enterprises segment, do you think TCS is set to see revenue from its non-linear initiatives?

We announced our non-linear initiative in three areas.

In products, we have the Bank-in-a-box; iON a cloud-based offering for small and medium enterprises and platform-based offerings in the business process outsourcing segment.

All of these have capabilities for adding more solutions and opportunities.

As of now, we want to create success in what we have now and then invest in some other offerings.

For instance, products is more focused on the banking, financial services and insurance vertical but we have opportunity in healthcare, certain areas of retail, manufacturing, etc.

More platforms can be created. But we need to first see some successes.

Even in case of iON, our application is an end-to-end offering.

I want to make successful proof-points and then take it to other markets.

We have got good traction.

We signed up 230 customers from 100-odd in February. But I am more interested in getting feedback from customers.

It will not be correct for TCS to assume that we know how to serve the SME segment.

We have not catered to them before this. We also, for the first time, are working with channel partners. I have given the team a year and we will do a review of this towards the end of March 2012.