Share Market Live

NSE

Tata Consultancy Services (TCS), the country's largest IT company, has reported a record quarter. The IT giant has announced its earnings for the second quarter of FY2023, ending September 30 (July-August-September). For the first time, the Mumbai-headquartered company's net profit surpassed Rs 100 billion.

TCS reported revenue of Rs 55,309 crore, up 18 percent year on year. The company's net profit jumped 8.4 percent growth to Rs 10,431 crore over last year. The employee additions slowed down considerably in the last quarter and the attrition rate at TCS breached 20 percent, increasing to 21.5 percent from 19.7 percent in the previous quarter.

CNBC-TV18 spoke to MD & CEO Rajesh Gopinathan, COO & ED N Ganapathy Subramaniam, CFO Samir Seksaria, and Chief HR Officer Milind Lakkad on TCS Q2FY23 results. Excerpts from the interview:

Regarding margin, you said you're confident you will reach 25 percent. But is it going to be easy to improve next year, considering problems of attrition and high-cost labour in the US?

Seksaria: Delivering 90 basis points (bps) in Q2 from 23.1 to 24, I think, is credible. And our priority is to exit quarter-four at 25. There will be a combination of things which will play out in FY24. We'll have the usual increments, and we'll have discretionary expenses coming back. We'll have to balance that off with productivity, utilisation improvement, and realisation improvement, and that is something which, over the years, if you see, we have been able to manage. We are collectively in it to do it.

Can you get to 25 percent without any further benefit from the rupee? Because if the rupee becomes a tailwind, again in quarter three and quarter four, can you surpass 25 percent?

Inflation, currency, all of it is something which we take on our profit and loss (P&L). Currency is not in our hands, we expect it, and we built it into our model, but we'll take it as it comes. Even if it goes on an appreciating trajectory, we'll have to build it into our margin, and 25 intent is irrespective of where the rupee goes.

How much are dollar and non-dollar?

Seksaria: In terms of revenue mix, 55-57 percent is dollar and euro, and GBP will be 25-30 percent.

Your onsite workers would be about 25-30 percent. Won't that continue to be expensive? Also, won't higher attrition, and therefore, higher wages be a problem for the margin?

Subramaniam: All onsite markets, whether it's the US, Europe or UK, are supply constrained. So, depending on the quality of resources, people with market knowledge, client knowledge, and industry knowledge will always come at a price point. Our model is about constructing a team of multi multidisciplinary skills that are required to execute the project. Some are in a high-cost location, some will be in a low-cost location. So, the overall value proposition from a cost and technology perspective is attractive, and at the same time, it comes without any added risks to the execution of a project. We have been doing that very well, in a way, and that's our secret sauce.

In Q2, which segments and pockets saw growth moderation, apart from the insurance sector you spoke about? And in a downside scenario, which other segments would get added?

Gopinathan: From what we are seeing, this time, the weakness is likely to come through from the manufacturing side rather than from the financial and services side. We see some amount of caution on the European manufacturing side. And we need to be careful about how we are positioning on that. So, it goes back to again that it's not a macro game.

With so much uncertainty, is there a possibility that your clients may defer the budgeting cycle? Is that something your clients are telling you?

Subramaniam: Most organisations we work with, especially the large ones, have a rigorous process of planning for the future. Within that, with so much of uncertainties, at best, the planning horizon can get shortened to every quarter and adjusted on a rolling basis for the subsequent quarters. What they have been telling us is that the programs you guys are executing, long-term or short-term, there is no pressure on those. When we ask them are you going to cancel any of these programs? The resounding answer we got is no, which is giving us some comfort in terms of at least the next two quarters.

You told us that you have 25-30 percent on-site workers, and the unemployment levels in the US are low. Would not attrition and high wage costs continue to be an issue?

Lakkad: US attrition has risen. But the differentiation between what it has been versus what it is now is less than what we see in other geographies. So, I don't see that as much of a challenge. From a wage standpoint, yes, there is a slight increase in wages in the US, but I think that is something which we manage through the proper mix. And because we are also getting a significant number of trainees in the US nowadays.

There are a lot of reports about tech companies delaying the onboarding of freshers. There have also been instances where variable pay has been less than what was promised or anticipated. What is happening?

Lakkad: I can comment about TCS. We had 100,000 plus trainees last year, 35,000 now, and are already looking for another 12,000. We will decide at the end of quarter three and the beginning of quarter four if we need to do more. We are honouring all the offers across the board, not just in India. Also, we have been paying 100 percent variable pay till last quarter. This quarter also, 70 percent of our people will get 100 percent variable pay, and 30 percent will get based on the business unit performance.

For the market, the big number is that you're hiring less than you hired last year. That comes as a bit of a shock, in the sense of a bit of an indication of whether you don't have enough work for next year. Any comments?

Seksaria: In FY21, when we had flattish revenue growth, we had a headcount addition of approximately 10 percent. Last year, we had 15 percent growth, and we had almost 20 percent. So, we have significantly hired ahead of time and invested incrementally in our organic talent development. So, I think that is what is now helping us in terms of flexing it as needed.

What about embarking on new programs?

Subramaniam: If we are talking about multiyear execution kind of programs, which we used to typically deal with, there is some amount of softness. Some amount of decision-making might get deferred if I can use that word, but it's a function of how the next 2-3-4 months will pan out, especially from a European perspective. If there is going to be an energy crisis, if factories are going to be shut down, and so on. The other thing that we are also hearing is that there is a recession or there is inflationary pressure.

Also, catch all the live updates on markets with CNBC-TV18.com's blog

First Published:Oct 11, 2022 4:41 PM IST