Kicking off the IT results season on Wednesday, TCS posted strong Q2 numbers. While the company does not give revenue guidance, its management believes this growth is sustainable going forward. V Ramakrishnan, CFO, spoke to BusinessLine on TCS’ proposed ₹16,000-crore buyback, the impact of US elections on the company and how the Secure Borderless Workspaces (SBWS) model is faring. Excerpts:
Is the buyback meant to pump in additional funds into Tata Sons?
I can’t get into specifics but a buyback is undertaken to address the needs of all stakeholders.
Even in these times, our buyback is testimony to the fact that we have continued to maintain our stance on a long-term capital allocation policy of returning excess cash to shareholders.
Towards the end of 2019-20, CEO and MD Rajesh Gopinathan had said that growth will come back in Q3. You have achieved this in Q2. Is this growth sustainable or just the result of temporary pent-up demand?
Yes, recovery was faster than expected. The underlying demand for tech usage has got accentuated after Covid-19. Companies are trying to navigate their businesses and taking a relook at tech. Many of them are re-engineering their product delivery mechanisms for their end-customers. All this can be seen in our deal wins.
The total contract value of our deal wins was $8.6 billion in Q2, against $6.9 billion in Q1 FY21. We added two customers in the $100-million bucket. There has been vendor consolidation and TCS has got many projects that resulted out of vendor consolidation.
However, we maintain a cautiously optimistic stance as the pandemic is still on.
In Q2, TCS expanded its operating margins to 26.2 per cent, an increase of 260 basis points. What resulted in this gain?
We have always maintained growth is the best margin lever. Our revenue growth of 4.7 per cent, coupled with execution, client wins which were broadbased and high employee utilisation, aided in the improvement of margins.
Also, the currency factor was neutral (no gains) in the quarter. Our aspirational target remains in our stated range of 26-28 per cent.
Also read: IT majors set to see robust numbers after two quarters of Covid-led disruptions
You have said that salary hikes will be rolled out from October. If we factor in the seasonality effect in Q3 as well as possible hikes in visa costs, how do you see margins playing out?
We will factor in everything in the 26-28 per cent range. After salary hikes and other factors, the impact on margins historically was 1.5- 2 per cent.
Other factors such as revised rules for visas are being looked at. Considering the upcoming US presidential elections, how are clients looking at outsourcing spends in the backdrop of all this?
It is interesting that there is no clear linear relationship between the US economy, businesses wanting to spend and politics.
When we speak to clients, we get a sense that they look for opportunities to invest or re-engineer their operations, considering the situation on ground. Clients look at tech spends (in terms of) how it is relevant to their business.
For TCS, the last four quarters have resulted in a total contract value amounting to $27 billion.
A few quarters back TCS outlined that 25 per cent of its workforce will work from offices by 2025 using the SBWS model. With the easing of restrictions, will there be any changes to this?
In line with our 25x25 vision, our employees continue to work remotely through the SBWS model.
We believe that in the future there won’t be a need for more than 25 per cent of our employees (numbering 4.53 lakh) to work out of office or from client locations.
An employee will need to spend only 25 per cent of his/her time in office. Currently, only 3 per cent of our workforce is back in offices and that too for the most critical business needs.