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There has been an expectation mismatch, says TCS chief

By Shivani Shinde Nadhe and Sadananda Mohapatra
October 15, 2015 08:42 IST
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A shareholder arrives for the Tata Consultancy Services (TCS) annual general meeting.Based on the records we have built for five years, analysts expect us to perform in a particular way.

I disagree with the differentiation between Indian and global IT players. We all have capabilities and we will deliver.

Order books will not translate into revenue numbers this year. These are all multi-year deals and will take time.

For Tata Consultancy Services, the country's largest information technology services provider, growth seems to be tapering as some of its businesses hit soft spots.

N Chandrasekaran (below), managing director and chief executive officer, says the fundamentals are intact and the September quarter's order book was one of the best ever.

In an interview with Business Standard, he talks about growth, acquisition strategy and digital spending.

Excerpts:

Take whatever parameters, either TCS' own track record or a comparison with competition, your growth numbers look slow.

This quarter, we reported volume growth of 4.9 per cent, a good number.

To answer your question (why we miss expectations), we have had a series of good quarters, where everything worked, no softness anywhere.

From there, we started having softness, whether in verticals like energy or telecom and simultaneously, had region-wise issues such as in Latin America, Japan and Diligenta.  

Softness does not mean we were not growing at all or had de-growth. The misses are very marginal, a few basis points.

But, because it has been happening for five quarters repeatedly, the cumulative effect is showing and people are talking about it.

I am not disputing that there has been an expectation mismatch, and it is happening continuously.

Based on the records we have built for five years, analysts expect us to perform in a particular way.

I think it should get fixed; I hope to get it (the expectation mismatch) fixed.

The mismatch is evident. You said Q2 had one of the best order books but it is not showing in growth.

Order books will not translate into revenue numbers this year. These are all multi-year deals and will take time.

There is a mismatch between volume growth and dollar revenue growth, indicating lower realisation. Does it mean pricing pressure?

It is a mix of all factors, sometimes a geography mix, sometimes a service mix.

Prices change based upon geography and on the services we offer, quarter to quarter.

But, there was no price drop.

We expect realisation will be flattish for the rest of the fiscal (year).

N ChandrasekaranThe emergence of digital technology means consulting will be an integral part of deals. But, in the current quarter, consulting revenue showed a dip. How do you see consulting practices for TCS, going ahead?

First of all, digital is not included in the consulting business unit for us.

All aspects of our digital offering are embedded in services.

That’s why you did not see the digital growth in consulting growth.

Our digital team is part of the other ISU (industrial solution units) and are deeply integrated.

As for the dip in consulting, that is because discretionary spending from clients is low.

Your competitors have spent huge amounts of cash in acquiring other companies to improve their digital capabilities. What will be TCS’ strategy?

We will do it if we feel the need for it.  

There is a thought that Indian IT players disrupted the outsourcing business earlier with offshoring and their GDC models. Now, with digital disruption, multinational IT players might have a better chance because of their spending in this segment. How do you see Indian IT companies catching up with global peers? Or how will TCS compete with global competition in this sector?

I disagree with the differentiation between Indian and global IT players. We all have capabilities and we will deliver.

From a TCS point of view, we have invested in the digital way ahead; we started talking about digital at least four years earlier.

We have invested in platforms; we have 12 platforms today, we have invested in training a lot of people. We created Ignio for some years, we are training 100,000 employees on digital technologies, for which we have invested in our in-house classrooms.

We have our own internet of things platform.

By when do you think the Japan and Diligenta issues would be sorted?

We will take another two quarters to sort our integration issues in Japan.

In the case of Diligenta, we have very long-cycle deals.

The deals we have are mostly closed-books and we need to add new insurance; that’s why revenue is not increasing.

Some of the old deals we have are yet to close and these will take time.

Image (Top): A shareholder arrives for the Tata Consultancy Services annual general meeting. Photograph: Vivek Prakash/Reuters

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Shivani Shinde Nadhe and Sadananda Mohapatra in Bengaluru
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