I don't see any reason to change the margin aspiration band: N Ganapathy Subramaniam

Tata Consultancy Services (TCS) has achieved all-round growth in all verticals in the first quarter of this fiscal (Q1FY20), but the BFSI segment, capital market and European bank situation softened a bit, says N Ganapathy Subramaniam (NGS), chief operating officer & executive director, TCS. During a candid chat with Swati Khandelwal, NGS said the company made 30,000 campus offers, of which 12,000 are already on-board and the rest will join in the current quarter.

TCS' EBIT margins have declined by 90 bps to 24.2%. What led to this fall? Are you confident to retain the FY20 margin guidance between 26-28%?

This quarter of the financial year 2020 (FY20) has been a steady quarter for us. We achieved all-round growth in all the verticals except in the banking, financial services and insurance (BFSI) segment, capital services market and European banks situation, which softened a bit and is something that we called out in the last quarter as well. But overall, we are very happy with the performance. When it comes to margin then we are happy that we were able to maintain it despite the softness in the revenue, which we didn't anticipate at the beginning of the quarter. I don't see any reason why we need to change that margin aspiration band that we have published at this point in time.

Your profit has been better then street estimates slightly, however, the other income component has been on the higher side. Going forward what is your estimate on the profitability?

We, as a management team implemented strategies that aimed for revenue generation in terms of Business 4.0, Agile automation and all that is relevant. The second thing is that this year we will focus on leveraging all the investments that are made in terms of Agile, workplace transformation, workforce transformation and continue to stay on a double-digit trajectory. Our focus is to maintain the double-digit trajectory as well as look at the efficiency angle and get back to our margin aspirations.

What has been the cross-currency headwind this quarter? What is the further impact you see on constant currency revenue growth going forward?

On the constant currency basis, when you say that it is a 10.7% growth versus 12.6% then it is not much of the reflection on the currency basis because we are talking about constant currency numbers. In the last quarter, we called out certain softness in the capital markets and certain organisations or a certain set of customers in the European segment, but both of them have accentuated in this quarter. We hope that this situation will correct itself in the coming quarters.

How do you see the sub-contracting cost rising amid the ongoing H-1B visa restrictions? What kind of impact do you see on your margin in the future?

I think the sub-contracting cause reflects the current business models and situations. It has been constantly going up as we need short-term skillsets to execute and capture the demand in the marketplace. If we begin to participate in the growth and transmission projects, especially in both the US and the European markets, then there is a need to have local market knowledge. In such a situation, we end up hiring some of the local specialists to support us in the product execution over a period of time who are typically short-term in nature.

You said that you see some stress emerging in the European banks. Can you elaborate the kind of impact that it can have on your BFSI vertical?

The BFSI softness is something that we called even in the last quarter, so I think that this softness has further accentuated in the capital markets space globally as well as in certain European organisations. Specifically, with respect to Europe, I think most of them felt that Brexit would have been over, and they would see an environment where the interest rates would go up. I don't see any basic structural weakness except the capital markets and the European situation. In the $5.7 billion contract value that we have announced in this quarter, more than $2 billion comes from the banking financial services.

How do you view the minimum public shareholding of 35% discussed in the budget?

The finance minister has made this proposal and we are currently studying it as well as a bill has to come regarding it. We have to wait for the details and the promoters will consider this appropriately in time.

What is the deal pipeline for FY20? Are the weak macros impacting large client decisions or deal closures?

I think the overall demand environment and the pipeline look good. The decision-making cycles, especially when it comes to digital payments is quite faster, but at the same time, it is short-term in nature where people are signing up for a long-term deal. The decision making is something that you will have to wait and watch.

The attrition rate is under control and stands at 11.5%. Do you think that you will be able to sustain these levels for the entire FY20?

I think so. If you look at it then you will find that the attrition level slightly goes up in the first quarter because people chose to go for high study and they make decisions post-performance appraisals. So, the attrition level goes up in the first quarter, but we are comfortable with that 11.5% attrition that we have right

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