Chandrasekaran on how TCS plans to remain No 1

Tata Consultancy Services has delivered a stellar performance for the first quarter of 2013-14. It has been improving on performance in each quarter. N Chandrasekaran, managing director and chief executive officer, talks to Shivani Shinde Nadhe on the future course. Excerpts:

Volume growth of six per cent, maintaining margins at a higher level despite pay rise, growth across sectors and regions - what could possibly spoil this party?

Our business is about demand and execution. We have to capture the demand and also flawlessly execute to get the best results. It is not easy in a large set-up like this, though I have smaller and nimbler units. The second is the regulatory environment. We need to watch out and adapt quickly to whatever changes come our way, especially in the medium term. Third, we need to scale the non-linear business in such a way that we can bring in a lot more sustainability in the medium to long term.

In the near term, it is about managing the demand and execution aspect and being agile on the regulatory front.. 

Has the US immigration Bill impacted the structure of deals in terms of the time period or the size?

No.

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What is the perception of clients on the Bill?

Clients understand that it is something needing to be tackled. We are working with them... we also need clarity on each clause that has been suggested. We need to wait for the provisions in the final Bill. We have all the scenarios worked up but there’s no point in talking about it now.

You have to understand that it’s a huge piece of legislation. The US has issues that they need to solve. What we are concerned is the provision for high-skill visa.

On this, yes, there are provisions which are challenging for us. And, there are provisions to promote local jobs, give more H1 visas, etc, which are positive.

The best way to operate, hence, for us is to work with other companies and meet as many people as possible and explain to them the consequences this Bill will have.

The issue is not that it will increase cost or affect the business model. The issue is at the end of the day, we need enough people to service the end-client.

Several analysts have been saying Indian IT firms need to change the business model and have higher presence on-site, like their multinational corporation competitors. Do you think this shift will not happen?

We have substantial local presence. Nobody has delivery centres in the US. You need to have enough people with subject matter expertise to service the client.

Even for US clients, we are doing significant projects for their international business. For this, we might not be in India or the US but have presence in Latin America or China.

We hired 1,800 people in the US last year. This year, we’ll be hiring a lot more. We do have to find a solution to the business model.

Whatever be the provisions, we need to comply with it, we need to create local jobs. We anyway believe that in every market on which we operate, we need to create local job opportunities.

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Europe did extremely well this quarter. What is the head room for growth? And, how does the Alti acquisition fit into this?

A lot of European companies are looking for transformational work that removes their cost structure and creates future IT systems. Continental Europe is certainly opening up and the deal pipeline is very good. I am sure Europe will do better over the next few quarters.

At Alti, we have a very credible client list and have over 1,000 people. We are done with a lot of integration. We have clients from four-five verticals like banking, government, retail, etc. Our unit heads representing these have spent time with the Alti team and interacted with clients.

We are trying to see what TCS can offer to these clients, with Alti’s local knowledge and manpower. Alti is about ¤130 million in revenue and has lower single-digit margins. We should ideally improve both parameters in a year’s time.

The only concern after the results was the lower hiring numbers. Is it time to relook at TCS’ hiring strategy, since you said automation has been increasing?

Yes, the hiring strategy will change overtime. But we do have a large scale and, hence, utilisation targets will go up.

Second, as we increase non-linear contribution, the revenue per person will improve and that will mean the hiring numbers will change.

Third, like non-linear revenue and platform, we will be higher skill-based. But at present we are still hiring in large numbers.

Even if we improve utilisation by two per cent, it means an addition of 5,000-6,000 people. So, we will continue to need large chunks of employees.