After A Quarter Of Virtually No Growth, TCS CEO Chandra Warns It Could Get Worse 

I think the unusual quarter has to be interpreted in context.
First of all, Q2 is traditionally the strongest quarter. Every year we start with a good Q1 which is better than Q4 then we post a very strong Q2, and that has been the cycle all through. And this year we have had one of our poorest shows from a revenue point of view, which is a 1 percent constant currency growth on a sequential basis, which is very slow. And also whenever we pose a strong Q2 it is also a strong quarter for BFSI (Banking and financial services industry). BFSI, you know represents 40 percent of our revenue, so we just can’t look at whether another business grew at 4 percent. It is very important for BFSI to deliver a strong quarter. And when BFSI doesn’t deliver a strong quarter, that has an impact on the overall growth. And we have delivered only 1.2 percent in BFSI (in constant currency terms). While we can say that BFSI growth is better than retail growth etc, it is 1.2 percent, so it is unusual from that perspective. Also it is unusual because in a quarter in which we had a major currency headwind, in a quarter in which we had very low growth, and in a quarter in which everybody knew that it’s going to be a big headwind because of these reasons, we have been able to deliver an exceptional quarterly performance. Margin and net profit both beat expectations and wildly, and that is something that makes me proud. That the teams have done a fantastic job in the areas in which they could focus on.

Two different viewpoints I want to give you. Same viewpoint, but two different phases. If you ask me whether as a business it’s a tough business, no, it’s a great business. The reason is that technology is the thing now. It is pretty much encompassing every single business. I am calling it ‘business getting embedded’ in technology. And it is across sectors. It is not that we are only seeing this in consumer businesses. Two years ago I would have said digital is more pronounced in consumer businesses, say in retail, and it is coming to banking. But, now it is BFSI, retail, it’s manufacturing, it’s healthcare, it’s everywhere. So it’s very strong and we are in a great place because we have the talent and we are investing in the talent, we are investing in IP (intellectual property), we are investing in partnerships, platforms, startup ecosystems and we have fortunately very strong financial strength. we are finishing the quarter with more than $ 5.5 billion in cash. So with all of that I think we are in great position to capture that, so I think the business is a great business and we will do, there is no question about that.
But if you come to what will happen to this quarter, or what will happen to FY17 or what will be our CC (constant currency) growth, will it be a poor CC growth this year, all those questions that people will ask. If you take from that point of view, I have to be very cautious, primarily because I don’t know the softness when it will ease, because we want the ramp ups to happen in the digital business. And I have to see signs of that.

I just finished the quarter and I delivered 1.2 percent so I need to see.
Also the thing that I have in mind is, in Q3 definitely we have U.S. elections. I normally, you have known me Menaka for many years, I have never linked macro to my business because I always decide my strategies, my plans, my executions based on what I hear from customers. I will only take the customer data points. But I do want to be little bit careful. Because you know, you don’t want to deliver a poor quarter from the revenue point of view and then say everything is going to be picking up. So you have to be careful. So I am careful to say that there is a U.S. election, how much of that will have linkage to softness I can’t predict.
Second thing is for retail sector, which is also an important sector for me because retail accounts for more than 15 percent of revenue. And Q3 is a quarter in which they focus more on holidays and delivery of gifts, so operational efficiency is what they look for. They will be quite okay to say, “okay this new application we will wait for next quarter, don’t worry about it it’s not going to make an impact for us this year, it can come 3 months later or 2 months later”. So those calls will get made. So I have to be careful to say that all these delays will get picked up in Q3 or not. So these are the two reasons I’d give.

There is no budget cuts. Broadly they are no spending cuts, there is no client spend cuts, that’s the distinction I am making. But I am saying delays. The program that is supposed to ramp up by let’s say August is not ramped up in August. It is not that they are cancelling the program, or they are not coming and telling me “oh we are going to do this huge channel transformation and now we are not going to do it. So let us evaluate it next year after January”. So I am not hearing that conversation. Not even one. So it is a little bit of a tough spot where you think you should be doing better.

From a Q3, Q4 perspective, broadly, I think your commentary is very important and very correct. The Brexit point of view, it’s very difficult to quantify. To me, the Brexit impact is the currency. Already from Rs 95 it(pound) has come down to Rs 81, Rs 82 levels. Whether it will go below Rs 80, we don’t know. So whatever is the currency impact we are going to bear. This India postponement (of orders) will be a tailwind. And, some of these retail things, if they pick up in Q3 and Q4, some of it will trickle down in Q3, some of it in Q4 - that’s a tailwind. Those two things, which we will normally not have in Q3 and Q4, we have that. But apart from that I think your commentary is what we should take.

What we’ve done is sustainable.

Our intent is to stay in the 26-28 percent band. So that’s what we will do. Whether from here the programs we’ve put in place will see an additional improvement in margin, we can’t say.

It’s not necessarily cost cutting because most of it has come in the execution, which means productivity not cost cutting. Whether it is using tools, whether it is automation, how best we can resource the project, mix, lot of levers.

These all have contributed structurally. All we are saying is that we have gone to 26 percent, in a structural manner. And that will stay. It’s not like we’ve done a one off and we will have to try very hard to do a one off again to stay there. But from 26 percent, how much will we go, that we don’t know.

There has always been a change in the pricing environment. There have always been deals which we cannot support. There have always been situations where someone is irrational. It’s not today, it has always existed and I have been around for sometime, as a CEO and previously as a COO. The best thing you can do in these circumstances, always, is that you should know where you want to play and when you don’t play. And as along as we have it in our mind, then we can do things. When you don’t have it in your mind then you’ll always blame someone, saying that somebody is cutting price. Somebody will always do so.

No. We don’t announce deal wins unless it is a material amount. We announce only those deals which are substantial is size.

On course.

It’s a very hypothetical question as I don’t have a vote there. My views don’t matter.