The Hindu Business Line : Cautious spending all around: TCS

Chennai, July 16 “General caution all around,” is the way TCS CEO and Managing Director, Mr S. Ramadorai, classified IT spending in its major markets, especially the US, Europe and Latin America. The comment came in the conference call with analysts after the company released the June 2008 quarter results.

Significantly, the company saw revenues from Latin America and India seeing negative growth, while the US, UK and Continental Europe markets saw collective growth of 2.2 per cent in dollar terms between the March 2008 and June 2008 quarters.

Mr N. Chandrasekaran, Chief Operating Officer and Executive Director, indicated that India, being a cyclical market and dominated by turnkey projects, is seeing a trough, with some of those projects coming to an end. Meanwhile, the demerger of a bank, located across Continental Europe, UK and the Latin America, saw discretionary spending of the bank in the LatAm region coming down.

Two clients, which TCS indicated could be ramping down at the end of the March 2008 quarter, continue to do so. He added that TCS would see a rise in revenues from these two clients from the middle of the quarter ending September 2008.

Client addition

The company added 35 clients, but active client numbers stood at 885 versus 904 last quarter. This shows that the company lost 54 clients during the June quarter. Commenting on this, Mr Chandrasekharan said, “We see a decrease in clients who come in with one-off projects. There is nothing to be read there. We are on course.” He added that the financial services industry is facing challenges and that the company has not seen any client-specific issues “that require attention yet, other than those we have specified.”

The banking and financial services vertical, which contributed to 43.8 per cent of revenues in the March 2008 quarter, contributed to 42.5 per cent in June.

According to him, pricing was down largely due to the products business showing signs of slowdown. “Decisions have got delayed in this segment. Otherwise, pricing is stable with contract renewals seeing no demand for lower prices.”

The company has closed 12 large deals, with three of them promising revenues of above $ 75 million. It is currently pursuing 20 large deals with “a good number of them in the banking and financial services industry.”

The company has also embarked on a cost-cutting programme that saw sales, general and administrative expenses down to 19.9 per cent of revenue compared to 22.16 per cent of revenue in March 2008. According to Mr S Mahalingam, chief financial officer and ED, “The focus is to execute projects more efficiently. You will see the impact of our efforts during the rest of the fiscal, with increased utilisation and offshore leverage.”

He also cited efforts to cut costs on travel, IT & communication related expenses and power costs. Mr Mahalingam said, “These contributed to about Rs 40 crore savings.”

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