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S Ramadorai on TCS and the IT sector
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S Ramadorai, chief executive, Tata Consultancy Services.
Photograph courtesy: TCS
July 19, 2006

S Ramadorai, chief executive officer and managing director, Tata Consultancy Services [Get Quote] does not anticipate a slowdown in the IT sector. He sees the business momentum continuing.

Ramadorai says that the Europe, US and Latin American markets have shown robust growth and that their order pipeline is healthy.

Excerpts from CNBC-TV18's exclusive interview with S Ramadorai:

What has been the key take away, it's been a growth quarter for you?

It has been a very consistent and sustainable growth for us and we are extremely pleased with the topline as well as margin growth. If one looks at the historical trends from the beginning of last year, it has been on a trajectory, which essentially shows growth and the initiatives that we have taken on, paying off.

There were a lot of concerns building up three months back that there might be a slowdown in the US and large companies like yours might get a bit affected. After the end of the first quarter, you have no such concerns at all on the kind of business flow that you are seeing?

Based on the business momentum and the focus we are providing on a global basis, we are not concerned. If you look at our growth in the European and UK markets, it has been very good. Latin America has been a good market for us. I think our focus across geographies, across verticals is definitely the way to address any concerns.

You do not give guidance but you think you can carry on this kind of growth momentum, visibility is relatively clear for you?

Absolutely yes, because the integrated full service provider and the global delivery model are paying us and I am sure we will see a growth momentum going forward.

Is there any shift in your recruitment strategy as such given the kind of volume growth that you are seeing, are you more aggressive on recruitment? Would you choose to keep a larger bench because you do not want to be short of resources when deals kick in?

We will certainly be very aggressive in recruitment; we will go to more colleges than we have been in the past. We plan to go to at least 300 plus colleges this year. We are also looking beyond engineering graduates - mathematics and some of the science graduates.

The training programme, which we would conduct for them would be a little longer but more importantly they would be very productive, in line with TCS' aspirations and goals. I think we have enlarged the pool very clearly plus we also need to globalise and recruit from other locations, from other parts of the world.

So we are on a journey where the numbers are going to be large. We need to attract the best but we need to more importantly retain them by training them the right way.

Do you see any issues with attrition at all? Are those issues mounting at all?

I think attrition is definitely beginning to go up and that always is a worry, but so long as we are able to contain it within the 10-10.5 per cent range, we think we will be able to manage it very effectively.

We are in a mode where the demand is far excess than the supply but we need to ensure that the professional well being and the type of projects they work on are the ones that will retain people capabilities.

A word on the companies that you have acquired and how well they are stabilising and what kind of margin impact are you seeing from those new operations?

Let me start with our Australian acquisition of FNS, it has turned profitable this quarter. They have won some very good deals in Taiwan and they are bidding on some very major engagements outside including China, so we see that as definitely a growth engine for the future.

Coming to our Diligenta deal, which we did in the UK namely the Pearl deal, we are well underway with regard to the platform rationalization, which we talked about last quarter.

This quarter as on April 1, almost 930-940 employees came into our fold and that is reflected in our margins because suddenly we have the onsite cost with regard to salaries of these people.

As we go into the future, we will see the same number of people in terms of higher number of books. That is one way and the second is what are the offshore possibilities, including outsourcing of infrastructure.

So we plan to improve that and that is well underway. The integration is complete and the synergies will be extracted as we go down.

The third one was the Chile acquisition, which has won a number of deals in the regions and that has been showing a fair amount of progress. So in all these three have shown tremendous amount of improvement.

The subsidiary CMC did exceptionally well this year. In terms of this quarter, margins have improved and the revenue mix from the international, domestic and the domain- based offerings have come very well.

TCS plus CMC synergies are beginning to show. In all the integration of the acquired entities is beginning to show and we just need to be patient for 2-3 quarters when the margins also kick in. We do see good integration and that has been well executed.

The way some of these inorganic moves have shaped up, does it give you confidence to strike more such deals? Are you happy with the way you have been successful at assimilating some of the newer businesses?

If one looks at the Indian acquisitions CMC, then due to the nature of it's business and the dependency on the government, it has taken us a little longer than we expected.

But the good thing is that we are able to go to the market now, both internationally and domestically and kick up CMC's margins. So in terms of timing, it has taken us a little longer than we expected.

With regard to the international acquisitions, they are well according to our time lines. FNS is already beginning to payoff as we said and Diligenta in terms of integration of the 900 people started this quarter and the next three quarters, we are going to see improvements in margins.

Overall we are pleased with what we have done, the size of these entities and our ability to absorb them and retain them has been the biggest learning from this. Therefore it gives us good confidence to look at acquisitions in the future, so long as this synergy is established very clearly and the lessons learned is applied by the management team.

So you continue to actively look at the inorganic space as well?

We always look at inorganic opportunities but the synergy part has to be addressed and the business case must be very well understood.

I asked because there is lot of talk going on in the market of a very large BPO acquisition, which is possible from TCS, are you looking at that space for a large sized acquisition at all?

We are not specially looking at any large acquisition at this point. I am not aware of any such thing in TCS and all this could be speculations.

How has the BOP side shaped up?

BPO shaped up extremely well, with Diligenta kicking in as a BPO entity plus the new wins, which we did were also very satisfying. The BPO play, which will exist alongwith the IT play and its transaction base, will be the focus and will continue to be the focus in TCS.

Clearly voice is not our preferred option and we will do it only to the extent that it is required to service transaction based play and at the end of the day closeness to IT and an integrated full services play is the direction. BPO has been very satisfying and a very accelerated growth.

A little bit of thought for the next three quarters, how are things shaping up for the rest of the year. Are you not concerned about volume growth, which is the central criterion?

The whole strategy of TCS is centered around a fully integrated services play, consistency of performance and sustained growth. Looking at these as the basic strategy, the growth along IT services, BPO, infrastructure services and consulting is going to be the key focus.

Based on the pipeline, which we have and the variability to execute well on a global delivery model, we believe we will be able to sustain the growth momentum.

At the end of the day, customers have a choice and we need to focus on the brand plus the execution capabilities will have to be done very well. We are in a world where the competition is not just from India but from across the world and the focus with which TCS has always performed will continue to be the key. All in all a very very pleasant quarter, a happy performance and we hope the momentum carries forward. We are quite bullish about it.

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