Tata Consultancy Services (TCS) held a conference call after it declared results fourth 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
- For the quarter ended March 2009, on Q-o-Q basis, TCS reported 1% dip in consolidated operating revenues at Rs 7171.80 crore against de-growth in US$ terms of 3.36% with volume dip at 2.65%, pricing was down 1.97%, effort mix towards offshore impacting 2.39% and rupee depreciation aided 0.64% and Citi BPO acquisition added 4.94% or US$ 71 million. The realized rate for the quarter was Rs 46.30/US$ against 46.75/US$ in sequential quarter.
- The blended operating margins dipped 60bps sequentially at 26.2% impacted by lower realization 44bps, higher SG&A of 109bps whereas currency movement benefited 31bps and offshore shift benefited 67bps.
- Volume growth on y-o-y basis was 3.1%.
- The forex loss for the quarter was Rs 192 crore against forex loss of Rs 250.59 crore in the sequential quarter.
- For the year ended March 2009, TCS recorded a consolidated revenue growth of 23% at Rs 27812.90 crore. Volume growth was 17.74%, exchange benefit of 10.8%, Citi-BPO acquisition added 1.59% whereas shift to offshore impacted 2.27% and lower realization impacted 4.89%. Operating margins improved 60bps at 25.8%, with currency benefit of 425bps, offshore shift benefited 51bps whereas higher SG&A impacted 87bps and lower realization impacted 454bps.
- For the year there was tax write back of Rs 103.11 crore against Rs 3752 crore in the previous year.
- For FY09, the Company won 28 large deals with 7 deals in Q4FY09. OF the 7 deals, 6 were from USA and 1 from UK. The pipeline is healthy with 20 deals in the foray.
- TCS added gross 3522 employees (net 521 employees) including of which trainees were 2227, 522 experienced professionals and 13967 associates in overseas subsidiaries & branches making a total workforce of 143761 employees. Citi BPO added about 12500 employees. For FY09, the Company added 48595 employees (gross) and 32354 employees (net) with offers made for 24885 for FY10.
- The average currency rates for the quarter was Rs 50.04/US$, Rs 71.91/GBP and Rs 65.52/Euro.
- As far as client concentration goes top client contribution was down 9.2% at 4.7%, top 2-5 clients was up 12.3% at 13.9%, top 6-10 clients was down 9.1% at 8.3% and other than top 10 clients decreased 2.3% at 73.1%. TCS has 62 clients (59 in the sequential quarter) above the US$ 20 million mark with 24 up from 23 in the sequential quarter over US$ 50 million mark and 7 clients unchanged from the sequential quarter above US$ 100 million were. During the quarter, TCS added 36 more clients totaling to 985 (965 in sequential quarter) active clients with % repeat business at 95.6% (96.3% in sequential quarter).
- The utilization rate for the quarter dipped 20bps at 79.7% (excluding trainees) and down 240bps at 69.4% (including trainees) with attrition rate down 50bps at 11.4%: 10.5% in IT services and 21.6% in BPO.
- Sequentially, in rupee terms, BPO grew 88.61% at 11.1% aided by Citi BPO acquisition contributing US$ 71 million whereas ADM de-grew 2.6% contributing 48.6%, Business Intelligence de-grew 17.3% at 6.8%, Engineering & Industrial services de-grew 9.3% at 5.8%, Infrastructure Services dipped 1.5%, Enterprise Solutions de-grew 7.7%, Global Consulting de-grew 33%, Asset leveraging services dipped 35.3% and Assurance services de-grew 10.8% and.
- In the industry verticals, BFSI grew 0.7% contributing 42.8%, Retail & Distribution grew 5.6% contributing 12%, Life sciences & healthcare grew 8%, manufacturing dipped 8.9% contributing 9.8%, energy & utilities grew 2.3%, Media & Entertainment grew 3.5% and Transportation & Logistics grew 1.2% whereas telecom de-grew 6.4% contributing 13.1% and Hi-tech de-grew 19.1%.
- In geographies, North America dipped 1.1% contributing 52.4% of revenues, Ibero America dipped 7.2% at 4.8% and Continental Europe decreased 0.5% contributing 10.8%, UK dipped 4.6% at 17.9%, APAC dipped 23.1% at 3.9% whereas MEA increased 15.9% and India increased 18.8%.
- The share of Time & Material contract was 52.9% as against 54.5% in sequential quarter and fixed price was 47.1% as against 45.5% in the sequential quarter.
- The revenue generation as per delivery location (excluding domestic clients) was onsite of 48.2% (51% for sequential quarter), GDC/RDC of 4.1% (5.4% for sequential quarter) and offshore of 47.7% (43.6% for sequential quarter). The Company has been able to achieve its target of offshore at 45%. The management believes that there is still headroom to improve on offshore.
- Cash & Cash Equivalents at the end of the quarter stood at Rs 4287 crore.
Future Outlook
- The management believes that global economy will take time to recover. There is uncertainty on large accounts.
- There is no clarity regarding demand environment. There is clarity in Retail, Utility and Pharma but others there is uncertainty. All clients are not closing budgets, they preferring one quarter at a time. The discretionary spend was tough earlier is better in some sectors. However, there is lack of approval of budgets and delays in finalization. There has been budget finalization in ADM in some cases. However, freezing of budgets is down.
- In terms of outsourcing budgets, the feedback from clients has been mixed. In some cases, deep cuts in IT budgets have led to across-the-board cuts, which includes outsourced services. In some other cases, where budgetary cuts have not been accompanied by proportional volume cuts, the Company has actually seen more offshore shift accompanied by higher volumes.
- On volume front, there is uncertainty. There is no clarity whether there would be any volume growth or not for FY10.
- With regards to US political pressure, the management is of the view that there is no direct impact, the clients are asking for accelerated resource optimization and offshoring. In terms of visas, the company has enough visas.
- Pricing environment is challenging. The clients are demanding price cuts between 4-15%. The management is factoring in pricing cut of lower single digit.
- In terms of recruitment, the Company is not recruiting laterals except for where specifically required. The Company has given offer letters for fresher joinees of about 24885. The joining would start only in Q2FY10 and as per the volume flow.
- In the industry verticals, Retail and Manufacturing have seen negative impact from Q3FY09 onwards. Telecom is also seeing impact with problems seen in BT leading to dip in UK and top client contribution. HI-Tech is also seeing some problem.
- BFS vertical is seeing some recovery but it is too early to comment whether this is systemic or has bottomed out. There could be clarity by end Q1FY10.
- For FY10 in terms of OPM, there is some headroom for offshore, there would be pricing decline. In terms of utilization, the management is trying for improvement in utilization without trainees. Whereas including trainees would depend on volumes.
- The other comprehensive reserve with regards to hedging losses in the balance sheet stood at Rs 714.78 crore against Rs 738.63 crore at the end of sequential quarter. For Q1FY10 contracts of US$ 120 million at Rs 41/US$, for FY10 contracts of US$ 349 million at Rs 41/US$. As of March 31, 2009, TCS has forward contracts worth US$ 153 million and options of about US$ 1081.7 million.
- The effective rate for FY10 would be similar to that of FY09 of 16-16.5%.