At this point, beating FY14 looks difficult: N Chandrasekaran

Interview with CEO & MD, TCS

On Friday, Tata Consultancy Services (TCS) saw its stock fall 8.7 per cent, wiping off Rs 47,000 crore of investor wealth, as the company missed expectations on the revenue growth front. Managing Director and chief executive N Chandrasekaran, however, says the September quarter was a good one. But, he cautions, performance in the third quarter will be soft. Edited excerpts:

The market has reacted sharply to TCS' September quarter numbers. Did you expect such a reaction?

No one can predict the market. I could feel there was a sense of disappointment. I think the disappointment is because the market always expects you to do well in the second quarter, as it is better and stronger than the first. That's the only reason. I, too, feel we should have recorded another $20 million in business.

On an organic basis, there seemed to be pressure in the second quarter. Was this due to macro issues?

In terms of performance, I think the second quarter was really good. Though the retail segment did well, it grew 5.6 per cent on constant currency terms; in the previous quarter, it was seven per cent. Some ramp-ups didn't happen. So, we lost a few million dollars there. We expected the insurance space to remain soft or at the same level as in the first quarter. But it de-grew further. Latin America should have grown by a few million dollars, but went down by $5 million; this was a surprise. When you take $5-6 million in each of these cases, it amounts to a hit of about $20 million from two or three areas.

Analysts feel TCS is trying to tone down expectations.

No, we are not. If you look at the miss, it's a small gap. It's a difference of 40 basis points, which translates to less than $20 million. I am very happy with the volume growth (6.1 per cent). I have a few major points for this quarter. I am happy with our growth, in terms of markets, services, geographies and business units.

I am a bit disappointed that we missed on a few million dollars of growth during a quarter that is essentially a strong one. But all indications from customers continue to be stable.

For us, Europe has done well. The performance in the UK was same as the company's growth on constant currency terms. It's not that the quarter was bad; just these three areas were a problem. The revenue growth of 4.6 per cent is really good.

Will the performance in the September quarter impact your growth target for FY15?

I cannot make up for the $20 million in the next quarter. The reason is the third quarter (ending December) is essentially a weak one. It will be soft, as we have furloughs in the manufacturing segment; also, the number of working days is less. We do not give an estimate. It depends on what parameters you take. At this point, beating FY14 looks difficult.

But all the three problem areas are work in progress. I did say the insurance segment will be soft. I think by FY15, we will see positive momentum in that vertical. We are pursuing some deals. The retail segment did well; just that some ramp-ups didn't happen. The sector has managed to grow well.

TCS announced a merger with CMC (Computer Maintenance Corporation). Do you think the merger will aid TCS' strategy in India?

CMC has strong presence in the domestic market. It certainly compliments TCS. I am yet to get into the details of CMC's footprint in India. I can only say my aspiration is to reduce the volatility in India business and grow from here. We will integrate CMC completely. All the employees will come on board TCS.

You recently completed five years at the helm of the company. How do the next five years look for TCS?

Compared to the past five years, we want to do better in the next five years. I think the digital vertical will be big business for TCS; it should be worth $4-5 billion.

Technology innovation will only increase. We have talked about digital issues such as cloud, big data and mobility. But going ahead, many more technologies will be built. From our side, the world has moved into a different paradigm - it's called the default digital paradigm.