A Command Performance



Tata Consultancy Services’ results for the second quarter of FY 2003-04,
which report a profit of Rs 576.4 crore, show it sprinting ahead, leaving its
competitors way behind and gasping for breath. Analysts say that TCS not only
scores with respect to profit growth, but also in terms of larger client base
and attrition rates. S Mahalingam, chief financial officer, TCS, shared the
story of the company’s success in an interview with Jasmine Kaur of Dataquest.

What has fuelled the Q2 growth?
TCS’s net profit for Q2 ended September 2004 rose by 14.1% to Rs 576.4 crore
as compared to Rs 505.1 crore in Q1 ended June 2004. The company’s revenues
rose by 13.9% to Rs 2,430.7 crore in Q2 ended September 2004, up from Rs 2,133.5
crore. We were able to execute large orders across multiple geographies and
different vertical domains. Further, the growth in sales was largely due to its
conscious efforts to increase the number of clients and also to reduce
concentration of revenues from top clients. The company added 52 new clients
during the three months leading to September 2004. But in adding new clients,
the company did not compromise on pricing, which is evident from the 13.9%
growth.

Will the growth continue?

S Mahalingam

The industry growth has gathered momentum, as the leading international
companies have increased their IT spends. Generic indicators such as IT spend
data, license revenue growth, results of US-based IT consulting companies, data
related to salary increases for IT employees in the US and the UK all point to a
cyclical up-swing in IT spends. Indian software companies have also shown a
strong increase in their fresh development revenues on the back of this
development. Further, the offshoring trend is now translating into revenues at a
fast pace, post the initial phase of knowledge transfer and organization
structure changes at the client’s end. Data points in the form of mining of
clients, reduction in concentration from top-10 clients and rapid increase in
employee strengths, as well as increased capex all point to an increasing
offshoring trend. Most of these factors will continue to boost revenue growth
and profitability.

Is the global economy on the upswing?
To begin with, the backlash in the US against the outsourcing of IT services
to India has now faded, and more and more companies from the US and Europe are
looking anew at outsourcing. In terms of our own revenue mix across various
geographies, we have seen a double-digit growth over Q1 numbers, which is also a
reflection of improvement in the global economic environment.

What sectors are driving TCS’s growth?
For TCS, banking and finance continued to be the key growth driver as it
contributed 37.7% to the revenue. The vertical has registered 18.8% q-o-q growth
in Q2 to September 2004. The manufacturing vertical, which grew 19.9% q-o-q in
Q2, has contributed 19.6% to the revenue. Life science and healthcare grew by
24.8% q-o-q, contributing 4.1% to the revenues, retail and distribution with
6.8% share in revenues grew by 17.4% q-o-q. Among other verticals, telecom
contributed at 17.3%, transportation at 4.1% and energy and utilities 3.1%, to
the revenues.

What about customer additions?
We have added 52 new clients during the three months ended September 2004
across various verticals like IT services, the IT-enabled services, BFSI and
telecom. Our BPO offering has been fully consolidated in the sense that the
company has an integrated delivery as well as sales team, and the company is
totally focused on transaction-based BPO, where it will able to leverage domain
competencies. TCS has added six new clients in the BPO area, and three new
clients in remote infrastructure management. TCS has 177 clients who have placed
orders for more than $1 mn. Thus, 36% of its active client base contributes more
than $1 mn each. TCS’s client base includes world-renowned names like GE,
P&O Nedlloyd, NHS, AIG, HP, Prudential and Standard Chartered Bank to name a
few.

Jasmine Kaur in New
Delhi

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