Regardless of macros, continuous engagement with customers is what pays off for an IT firm, says V Ramakrishnan, CFO, TCS. After the Street-beating performance, he spoke to ETMarkets.com.
ETMarkets.com: Congrats on the strong set of numbers. Your top line and bottom line both were in excess of 15 per cent I mean like 17-18 per cent.
V Ramakrishnan: Yes, that is right.
ETMarkets.com: What drove the numbers this quarter?
V Ramakrishnan: From this quarter, if you look at across industries, there has been a good moment and also across geographies. It has been almost all around. With the exception of Middle East Africa, we had strong growth in the UK and continent Europe from a market perspective.
In verticals, we had good traction in BFSI, life sciences, retail and manufacturing. Margins have also been quite resilient. That is also a factor of good business growth.
ETMarkets.com: If we talk about your digital, it now accounts for nearly 30% of your revenue?
V Ramakrishnan: Correct.
ETMarkets.com: I just wanted to know what is driving growth there?
V Ramakrishnan: In digital, there is a whole host of technologies which are part and that is an expanding set of technologies. Just in the last year, we added around 20 sub services which are part of the digital stand.
These are becoming more core technologies and many of them have the potential to drive a lot of growth and transformation within organisations and these have become the core technologies. You continue to see this expanding and maybe after a few years, perhaps almost the entire sector could be driven on the back of many of these technologies.
ETMarkets.com: Is there any competition there?
V Ramakrishnan: There is competition because it is not that we are the only one who are in that space…
ETMarkets.com: Because I guess Indian companies are catching up to the trend…
V Ramakrishnan: Yes, but things to remember is as early as 2013 when our Chairman had said default is digital. Very early on, we saw the signs and the leaders had the vision to look at how to start building those capabilities and capacity at scale. Drive the right alliances and partnerships because this is a huge ecosystem of several players, several startups and many companies who are actually doing work in many of these technologies.
Some complement each other, some are more niche but we work with several of these partners and technology providers and service companies. So the solutions we build are on the back of these technologies.
We also have invested in one or more technologies. So it is a continuing process over the last 4-5 years. A significant number of employees have gained good deep understanding and knowledge in one or more of these technologies. There is in-house technology capability to deliver.
We also work with technology players and then the deep contextual knowledge that we have of our existing customers. We are able to build those solutions, which make sense for the customers. Bring all these together and also the investments we have made in our own research innovation centres where we have developed some of the products and platforms. Some of those also have a very significant role to play in how this is panning out.
ETMarkets.com: Given the traction there and the focus there, can we expect this 30 per cent to be maybe 35-40 per cent one or two years down the line?
V Ramakrishnan: It (digital) will continue to grow, we cannot put a number. I do not think there is a constraint of any sort. This is a very expanding space. We will continue to see good growth in this for several more years to come.
ETMarkets.com: If you talk about margins particularly like 25.1 per cent for the quarter, I guess it was down QoQ as well as YoY, right?
V Ramakrishnan: Yes.
ETMarkets.com: Is it a little lower than your comfort zone of 26-28 per cent? Is there scope of margin expansion?
V Ramakrishnan: When we look at it on a year on year basis, our margin is 25.6 per cent for the full year and it was 24.8 per cent last year. When you look at it, there has been an expansion of 80 bps or 79 bps year on year. That is something which is a factor to be considered. Also in the current quarter, we had slight increases in some of our expenses and partly some one-offs…
ETMarkets.com: Is it due to sub-contracting capabilities?
V Ramakrishnan: No, those have not increased significantly in the current quarter. We did have some spike in the last quarter, but not in this time. So, we are very much focussed on how to continue to increase this. We do not see anything significant to call out now. It is not an easy task, but there are enough levers which one can continue to focus on and pay attention to and we are comfortable where we are and we are happy with the trajectory.
ETMarkets.com: Do you think the margins are stabilised around the current levels like what we had seen in the last one or two quarters?
V Ramakrishnan: No, even if we look at it over the last few years, our margins have been resilient and we continue to do that. Now within quarters, you will always have some ups and downs. For instance, in the coming quarter that is Q1, we will have the impact from our salary increases. Typically in the past years, there is an impact of maybe 1-2 per cent on our margins because of those increases and in subsequent quarters, we quickly recover that.
Such things would be always there, those are part and parcel of it. Our goal is to improve on that and increase it from where we are. And you must also remember that it is the industry leading margin across players domestic, international wherever you look at.
ETMarkets.com: If you can talk about banking and financial services, the numbers are pretty good this quarter, but if we look at the overall scenario like talks of the US getting into recession and all that, what are the signals you are getting from clients?
V Ramakrishnan: See, it is not just this quarter, steadily over the last 3-4 quarters, BFSI has been growing. Coming from where we were for the last two financial years on BFSI, we have seen a steady increase in that. This talk of US recession is itself a little debatable because one does not know whether it is really there or not because there are many countervailing factors.
Having said that, the macro is one aspect, what we continue to do is to engage with our customers, prospective ones and individual customers. They have to run their businesses. Now macro is something which the economists and market observers may be looking, at but you are running your business from morning to evening. You are looking at how your customers are looking at things, what you should produce, how you should get that, we do not get side-tracked by macroeconomic factors, you continue to do what you have to do.
When we are engaged with our customers, we look at what are their challenges, what are their areas where we can bring technology to intervene and heRead More – Source