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TMCNet:  Europe will bounce back by 2013 end [Financial Express (India)]

[January 16, 2013]

Europe will bounce back by 2013 end [Financial Express (India)]

(Financial Express (India) Via Acquire Media NewsEdge) S Mahalingam, chief financial officer at India's largest software exporter, Tata Consultancy Services, who is retiring next month after a tenure of 10 years in that position and over four decades with the company, talks to Shruti Ambavat on the company's global footprint, India's growing attractiveness and clients' increasing discretionary spending. Edited excerpts: If you compare the volume growth of this year to last year's 3.2%, with the same set of problems of furloughs (mandatory time off work without pay), the dip is quite significant. Your comments.



Furloughs is nothing new and has been happening since 10 years in the US, traditionally in the manufacturing and hi-tech sectors. In October, we were expecting the normal trend of temporary shutdowns. But by November, we analysed that some companies that have traditionally not gone for furloughs are going for it. The base in 2013 is higher than 2012. That is why I am not particularly worried about Q3. We had said at the beginning of the year that growth will be front-ended and will be reduced compared with last year. Furloughs will not continue for the next quarter because that is the budgeting quarter for our clients. We are no longer in a situation where the customer says he wants a certain number of people.

This quarter has seen a 2.4% decline in growth from Continental Europe. What could be the reasons behind this For us, Europe will bounce back in calendar year 2013, since the deal pipeline is strong. The regions we are in typically are the Netherlands, Nordic region, Germany and Switzerland, which are strong economies. We are also increasing business in France. So, we are not in the troubled areas. We have some presence in Italy and Portugal, but not big enough.

How significant is discretionary spending as part of new deals for TCS There are two things in terms of projects for us. One is running the organisation and the second is changing it. While running a company, clients look for mission critical projects. We are still getting many projects in this form where core systems need to be built and maintained. Our existing customers who have done a fair amount of outsourcing on running the company, might find that there are some newer areas to the company might need change. Last one is technology like digital enterprise, analytics and mobility, that clients are keen to implement.

What is your outlook on the telecom sector Telecom is one sector that we should keep watching as it is still under pressure.

A couple of quarters back, you had mentioned that the way things are working in India, it is a deterrent for project implementation. Do you still hold the same view Everything needs to have a clear strategy and objective. India is typically a low margins project with collections problem. So if I have one person free and there are opportunities here and opportunities in an overseas project, I will deploy that person overseas because we will get a better cut. But one main thing, as far as India is concerned, is that customers give you a complete project from start to end. You completely build a system integration project. Hence, on a long-term basis I would prefer projects in India where such learning is present. Secondly, visibility is important. When I do projects for the ministry of corporate affairs or the National Stock Exchange, then I do some of the large government projects. These are the mission critical projects for the nation so when the government has some new project coming up, I will automatically be a serious contender.

The growth in Latin America has been 10.9% this quarter. How does it look from here on We have invested in the Latin American market for about eight years now. We have a strong presence in Mexico, Chile, Columbia, Ecuador. And now Brazil is also shaping up well.

Is there any thinking at TCS going on to deleverage from Continental Europe We are a global player. We need a phenomenal amount of footprint across the world. We are not looking at deleveraging ourselves from any region. We are not present at this point only in those markets where we feel it will be very difficult to operate like Africa, especially North Africa.

Has the recent US elections changed circumstances for the IT industry The fiscal cliff was a political issue rather than a business one. The companies were not only working on a scenario of GDP decline etc. We didn't really see companies tightening their belts on budgets. With the fiscal cliff out of the way, some part of the problem has already been pushed by two years. If the US had been fallen by the fiscal cliff then maybe it would have been a Lehman-type of situation.

You were talking about meeting the upper end of the Nasscom target (11-14%) on a constant currency basis. Do you have any concerns of the rupee movement front Many people who predict on rupee, do it on the basis of the economic conditions prevalent here. The whole issue is that if India's administrative attractiveness improves, lots of money comes in. If you delay GAAR by two years then India will be an attractive destination. We have hedged for six months this time instead of 1 year at R52-53 per US dollar.

What are your plans post retirement Basically, I am not getting into any executive job here like a board position on TCS or anything. So far, I have been working on building the IT industry and a company within it. This can be a little wider now in terms of society or other industry.

Copyright 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com Credit: Shruti Ambavat (c) 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com

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