Q&A: N Chandrasekaran, MD & CEO, TCS

'Possible to develop business model with strong growth'

Tata Consultancy Services has yet again delivered a strong third-quarter number, for 2010-11, unlike the competition. N Chandrasekaran, Managing Director and CEO, speaks to Shivani Shinde on volume growth, margins and the business environment. Edited excerpts:

Despite a weak quarter, TCS has managed volume growth of 5.7 per cent. What is driving this?
One is our presence in all markets. Two, customers are looking for efficiency, which in some cases drives vendor consolidation. We also won two large transformation deals this quarter. More important, we have seen good momentum.

A section of analysts think TCS might be getting business at the cost of margins. Comment.
It is very much possible to develop a business model which has strong growth with good margins. There are occasions when we have to walk away and say no. But that is a position I would not like to take. Our business model has very strong relevance in getting revenue efficiency and helping customers grow. We not only have a footprint and the full services capability but we are also investing in all the new technologies, ahead of the curve. Hence, we are confident of delivering the growth numbers.

Is their enough headroom to improve margins further?
I am not driving margins to a particular number. If you are asking me whether we are at our optimal, I cannot answer that yet. We are driving our non-linear initiatives and if we are successful, we will have more options and new opportunities, both in terms of revenue per employee and margins. As we scale these new initiatives, their margins will improve.

For instance, our Diligenta operations are not generating optimal margins. It is not profitable yet. Similarly, our Latin American business is also an example. So, there are new initiatives gaining scale, sans optimal margins. There are opportunities to improve margins and options available for scaling non-linear business.

You spoke about a price increase of 118 basis points. Will it go up further?
I don’t think that would be possible. Especially as the macro expectation is still weak. The pricing increase we have managed is on a combination of new contracts and existing contracts that were up for renewal.

You added 35 clients with some large transformational deals. Are large deals back?
Large transformational deals had dried in 2010. It is beginning to come back. But we still need some time to say that such deals are back. However, there are enough large and longer duration deals in the market. It’s just that the number or volume of such deals is less.

The UK has grown 12 per cent during the quarter, what is driving the business there? Is it due to the PADA deal?
Growth in any industry or market, this quarter, is not specific to a particular customer. Growth in the UK, too, is broadbased. With regard to the Personal Accounts Delivery Authority (PADA) deal, we are in the process of creating the platform. Once this goes live, we will get revenues from the services. But that will still take some time.

TCS will be making 37,000 campus offers. Does that mean hiring for FY12 will be more than this year?
We have surpassed our 50,000 target for this financial year. We are adding another 12,000 to 15,000 people this quarter. Besides, we will also be adding 37,000 students next financial year. From here, we need to see how the demand is. Any further hiring will depend on business environment. I think we have created enough bench strength and have a good utilisation rate.

But despite these numbers, one of the challenges for us is to retain employees. We have managed to get it down on a sequential basis, but it still needs to be managed.