TCS says demand strong, no order cancellation; shares recover

Tata Consultancy Services chief financial officer S Mahalingam says demand for IT services continues to be strong despite weakness in macroeconomic environment. Though growth might be lower as compared to the previous years, the company will meet its forecast for the current fiscal, he added.

Earlier, TCS said it expects dollar revenue growth to exceed IT lobby Nasscom's industry growth forecast of 11-14 per cent growth.
TCS shares dropped over 8 per cent in the last three sessions over concerns of margin contraction and slower volume growth. However, the stock rallied on Thursday, rising 1.4 per cent at Rs 1,318, outperforming the broader BSE IT index, which traded with 0.4 per cent gains.

Here are edited excerpts from an interview with S Mahalingam.

No slowdown in growth:  There is demand in the market place. Customers have a budget and they are spending that budget and this means that they are doing both the normal piece of work and what is called discretionary piece of work. There have been no project cancellations and therefore situations are exactly we had foreseen for the year. The other point is that as we already know this year as a whole will be having a lower growth than last year. Essentially, we are not saying anything about slowing down of growth or operation. This is playing out exactly as we had expected to play out.

Annual margins intact: Margins matter when it is for the year as a whole. Obviously, each quarter will give you a direction as to what the market has and in each quarter there are different criteria. For instance, as far as the June quarter is concerned, there is a question of increments that come in and therefore that has an impact on the margins. What we have seen is that there are markets where we have been investing quite a bit, whether it is some parts of Asia Pacific or it is in South America, where we are certainly seeing improved business coming from there. Therefore, the point is, that essentially some of these strategic initiatives are paying off for a period of time there could be a slightly lower margin, but on a yearly basis we believe that there is a certain margin that is associated with this business and we will be able to deliver that margin.

Hiring 50,000 employees in FY13: The offers that we make and the number of people who join us are based on what we expect the year to turn out to be and beyond that what we think the market is going to turn out to be. So, if I think that as far as 2012-13 is concerned, there is going to be this percentage of growth that is the capacity that is needed for the growth, I tend to get from outside and so nothing has changed as far as that is concerned. So that's why we said as far as this year is concerned we will be totally getting in 50,000 people at the gross level. We continue to stand by that figure and in this quarter also we had a number of people joining in as planned.

No pressure on pricing: The competitive intensity keeps on increasing because this is a field that has a number of competitors. We are competing with not only India based players but also global players but so far we have not faced any issue on the pricing front. The customers have not come to us asking for reduced pricing at this point in time.

Outlook on US, Europe: We have not seen any reduction in the spend basically. Even organizations that have reduced their overall spends continue to spend equally or more on outsourcing so that has happened. The second is that new customers have come in to take advantage of this outsourcing and off-shoring phenomenon and therefore we have not seen any reduction in demand.

IT spend, market size increasing: We have seen companies which have not outsourced substantially are going in for large contracts. The market is certainly expanding. Obviously, it is also a competitive one because we would have contracts for negotiations and therefore there will be bidding for many competitive forces, but overall I think the way we see the market is that it continues to expand and there is a great amount of business to be had in this incremental demand environment.

Golden era of IT not over yet: TCS is a $10 billion company and in the old days we would plan in terms of growth at 50 per cent and beyond that is going to be an extremely difficult proposition, but if you take the absolute growth, for instance, we grew by $2 billion last year and the year before by $1.8 billion. The kind of growth at that kind of scale doesn’t appear to be very difficult. There are enough conditions in terms of being able to create new demand to be able to compete effectively in terms of offering a value proposition to the customer and therefore the growth momentum continues. Percentage will be different because the Indian industry is exporting nearly $17 billion in terms of exports and therefore there is a base effect we will have to content with but other than that I see only growth in the future.

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