Still scope for cost management: TCS

Tata Consultancy Services (TCS), the country's largest IT firm, feels that there is still some scope for cost management, said company's Chief Financial Officer S Mahalingam.

“We had initiated several mechanisms in the past few quarters and they are started to show results. Such as the new organisational structure we had put in place a year back, the whole cost management initiative and the move towards achieving 19 per cent SG&A. But going ahead I would not like to depend just on cuts but have a cost structure that will help in delivering the margins we have seen this quarter,” said Mahalingam.

TCS’ Q1FY10 results beat market expectation with its net profit increasing by 15 per cent and revenues grew by half-a- per cent sequentially. The results were also impacted by a lower forex loss and the top clients of the firms showed growth. The share of the top 10 clients rose to 28 per cent in the quarter from 26.9 per cent in the preceding quarter.

However, for Mahalingam sustaining this growth for the next few quarters will be a key concern. “One of the biggest positive this quarter was no decline in revenue. But there are a couple of things that does bother me. One, we need to completely focus on margins. To do so we will need to diversify enough so that there is growth. Two, currency remains to be an issue and three; we are still in the cost growing area. How do we make sure that the cuts are sustained will be important,” he added.

Some of the measures that have helped the company deliver a good set of numbers are the increased focus on offshoring. TCS has increased its offshore component by 2.7 per cent to 50.4 per cent for the June quarter from 47.7 per cent last quarter.

The company was also able to improve its employee cost. TCS improved employee cost by Rs 27 crore sequentially, which represents 30-35 basis points. “This improvement is on the back of nearly flat revenue growth. But then I have paid full target variable pay. If I would not have done that it would have been much more than that,” he said.