Tata Consultancy Services (TCS) held a conference call after it declared third quarter of FY09. Mr S. Ramadorai, Chief Executive Officer and Managing Director, S. Mahalingam, Chief Financial Officer and N. Chandrasekaran, Executive Vice-President addressed the conference.
Highlights of the call
- TCS reported 5% sequential growth in the consolidated operating revenues at Rs 7277 crore with 2.42% volume growth, rupee depreciation benefiting 3.39% whereas pricing was down 0.1% and offshore shift impacted 1.06%. In US dollar terms, revenues were down 5.8% sequentially whereas on constant currency basis growth was 1.23%. The realized rate for the quarter was Rs 46.75/US$ against 44.17/US$ in sequential quarter.
- The blended operating margins improved 60bps sequentially at 26.8% on higher offshore shift benefited 25bps, rupee depreciation benefited 136bps and lower SG&A benefited 166bps whereas dip in productivity and expansion of resources impacted 269bps.
- The forex loss for the quarter was Rs 250.59 crore against forex loss of Rs 260.78 crore in the sequential quarter.
- The management has seen stable pricing. However, with the current tough environment, pricing could decline. The management is continuing efforts to maintain pricing.
- The revenues from Citi Global Services acquisition would start in Q4FY09. The company paid US$ 514.8 million. The management is confident to meet the revenue numbers discussed at the time of CGSL acquisition of US$ 2.5 billion over a period of 9.5 years. The sell off of segments of Citi would not impact the volumes for the company.
- For H1FY09, the company added 30437 employees on gross basis and 18915 employees on net basis with 11773 (gross) and 8692 (net) added in Q3FY09. The company plans to add 30000-35000 employees for FY09 on gross basis. For FY10, the company has already made offers for 24879 trainees. The lateral hires have been scaled down drastically. Of the 1696 laterals recruited about 1200 are in Latin America and balance are for specialized services. For the nine months about 19800 freshers have joined.
- TCS added gross 11773 employees (net 8692 employees) of which trainees were 8704, 1696 experienced professionals and 1373 associates in overseas subsidiaries & branches making a total workforce of 130343 employees.
- The company closed 6 large deals: 2 in Retail and one each in BFSI, Hi-Tech, Pharma and Utility vertical. One is for more than US$ 100 million and one for more than US$ 250 million. Of the 6 deals won 5 are from North America. The key wins include a large transformational full services outsourcing deal from a leading specialty retailer of North America, multi-year deal from a leading US based Services Company, deal from a leading utility company in USA, multi-year deal from a leading utility major in Canada, multi-million vendor consolidation initiative in the Wealth Management division of a leading Investment bank, deal from a global Pharma major, transformational deal from Europe based leading worldwide logistics provider and multi-country deal from a global packaging and processing firm for ERP implementation.
- The management is seeing higher growth in Retail, Media, Pharma and Utility whereas BFSI and Telecom are slower verticals. The management is seeing cancellation and slower ramp up in Manufacturing, Hi-Tech, Telecom, BFSI and Transportation vertical. There are concerns of ramp down and slower decision making in new deals.
- The response on finalization of budget is mixed whereas there is certainty in some and uncertainty in others. There could be negative surprises like the Nortel Networks bankruptcy surprise.
- Nortel Network contributes quarterly revenues of about US$ 10 million with outstanding receivables of about US$ 3 million.
- Satyam Computer’s clients have approached the Company. The company would not go after the customers but if the deal makes sense it would go ahead.
- The other comprehensive reserve with regards to hedging losses in the balance sheet stood at Rs 738.63 crore against Rs 674.49 crore at the end of sequential quarter. In the quarter the company added contracts of US$ 250 million and would have used up contracts of US$ 480 million as discussed in the sequential quarter call. For Q4FY09 contracts of US$ 190 million at Rs 41.90/US$, for FY10 contracts of US$ 349 million at Rs 41/US$ and for further period contracts of US$ 31 million at Rs 41.50/US$.
- As far as client concentration goes top client contribution was down 9.5% at 5.1%, top 2-5 clients was up 7.3% at 12.2%, top 6-10 clients was up 3.5% at 9% and other than top 10 clients increased 5.5% at 73.7%. TCS has 23 clients (22 in the sequential quarter) above the US$ 50 million mark with 7 clients unchanged from the sequential quarter above US$ 100 million and most notable clients above US$ 20 million range increased to 59 from 55 in the sequential quarter. During the quarter, TCS added 41 more clients totaling to 965 (920 in sequential quarter) active clients with % repeat business at 96.3% (97.6% in sequential quarter).
- The utilization rate for the quarter dipped 120bps at 79.9% (excluding trainees) and down 290bps at 71.8% (including trainees) with attrition rate down 130bps at 11.9%: 11.2% in IT services and 20.5% in BPO.The management would be pleased with utilization between 77-80% but would endeavor to push it up above 80%.
- Sequentially, in rupee terms, ADM grew 4.2% contributing 49%, Engineering & Industrial services grew 9.9% at 6.3%, Infrastructure Services 15.8%, Enterprise Solutions grew 5.5%, BPO services grew 4.7% and Asset leveraging services grew 8% whereas Business Intelligence de-grew 1.4%, Assurance services de-grew 0.1% and Global Consulting de-grew 9.8%.
- In the industry verticals, BFSI grew 4.7% contributing 41.9%, manufacturing grew 0.8% contributing 10.6%, Retail & Distribution grew 30.2% contributing 11.2%, Life sciences & healthcare grew 13.4%, Hi-tech grew 1.6% and Media & Entertainment grew 23.1% whereas energy & utilities de-grew 9.3%, telecom de-grew 5.6% and Transportation & Logistics de-grew 15.8%.
- In geographies, North America grew 9.9% contributing 52.2% of revenues, Ibero America grew 13.6% and Continental Europe increased 6.6% contributing 10.7% whereas UK dipped 4.2% at 18.5%, APAC dipped 1.3%, MEA dipped 1.2% and India dipped 8.8%. In constant currency UK has grown 3.8%.
- The share of Time & Material contract was 54.5% as against 56.6% in sequential quarter and fixed price was 45.5% as against 43.4% in the sequential quarter. The revenue generation as per delivery location (excluding domestic clients) was onsite of 51% (52.6% for sequential quarter), GDC/RDC of 5.4% (4.6% for sequential quarter) and offshore of 43.6% (42.8% for sequential quarter).