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?

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