The usual constraints in the third quarter of the financial year notwithstanding, Tata Consultancy Services (TCS) posted a forecast-busting quarterly profit. Its performance was aided by a broad-based growth across several industry verticals and regions.

The country’s largest software services company posted a 26.65 per cent rise in net profit at Rs 3,550 crore in third quarter ended December 31, consolidating its leadership position in the country’s $100-billion IT sector. With the growth momentum picking up from the fourth quarter and an expected rise in IT spending and orders, TCS is hopeful of a better fiscal next year, even though India business doesn’t make much of a difference for the global firm.

In an interaction with Business Line , TCS’ Executive Director and Chief Financial Officer Sethuraman Mahalingam, who retires next month (on February 9) after a career spanning more than four decades, said the Tata group company continues to look at inorganic opportunities.

Excerpts from the interview:

TCS has posted good third quarter numbers, beating analyst forecasts, despite December quarter being traditionally a weak quarter. How challenging was it?

There were the usual constraints in the quarter — the holidays, fewer working days because of furloughs, but ultimately it is a people game. (Furloughs are temporary unpaid leave provided due to special needs, such as the economic conditions.)

In the beginning, we thought it would be a normal furlough and then suddenly we found it would be higher this time.

We were worried whether it’s indicative of next year and that’s why after about November and December we talked to people that there will be furloughs and there is going to be some impact.

But we delivered as per our plans and we also controlled our expenses very well.

How did you achieve that? How did you cut costs, especially as manpower costs are always on the uptrend?

This is a large organisation. I can’t be approving every single travel requirement or every single communication request. The way to achieve it is by the business units themselves enforcing discipline. But these units are very big. We set targets and collectively achieve them. Manpower cost is the biggest, and we believe that we can even bring it down. Simply put, I can improve utilisation — that means with the same manpower costs, I am able to deliver higher revenues.

But TCS is recruiting 10,000 personnel over and above its target of 50,000 personnel in this financial year?

We have essentially gone on a big journey in terms of productivity. Recruiting more than what we have planned for this year means that I have got more people joining for next year. The personnel whom we recruit in the last quarter (of this fiscal) would provide four quarters of benefit to me, rather than one quarter of benefit.

Infosys and TCS posting good Q3 results have improved industry sentiment. The market is now expecting Q4 and FY14 to be much better. Your comments?

What happens in Q4 is that new budgets come along; customers place orders; then the ramp- ups starts taking place. Typically that plays out.

Earlier in India, customers have what we call the ‘budget flush’, extra money with companies that would be spread out in the fourth quarter. But India business doesn’t make much of a difference right now, so it’s not a factor.

So, Q4 will start the momentum. But we expect the next year to be a better year than FY12-13. We believe that June and September quarters would be very good. But typically in TCS, we don’t give guidance, so to make a statement like that we should be reasonably confident.

Do you see IT spends rising in Q4 and the coming quarters?

To my knowledge, nobody is talking about a decline. There is some increase they are talking about. I have a feeling that given all the technology orientation, it should go up.

Many companies, including TCS, are sitting on cash piles. Why is cash not being utilised?

We can get into a newer business, it could be complicated contract, or develop a platform. That’s one way of using cash. Our strategic orientation is to dominate many regions, be more relevant in industry verticals and to get on to new technologies faster than others. Why would I be shy of using that cash?

What about the acquisitions so far and how was the experience?

As good managers we should never feel satisfied, because once you feel satisfied then you will become complacent. We will always be internally, very highly critical of anything that we do so that we are able to learn better and go on.

Any acquisition you do is a difficult one because you are trying to integrate people into your organisation, and they are getting into an Indian organisation. You are also trying to change the business model, because if I buy a company at a lower price, then something is not right there.

But if I were to look at it purely from what my goal was, from a return on capital employed from the key businesses, most of them have done exceedingly well.

TCS is also expecting to do better than Nasscom expectations for this year?

Smaller players have traditionally found it difficult to do very well in a tough environment, so it is safe to assume that smaller players may not grow.

Actually they might even grow at a lower pace than the projections. Then, if you take the multinationals they would grow at a faster pace, captives are not growing at this moment in a big way. So tier-I players or multinationals will have to make for that shortfall.

That’s where we said that we will grow at a faster pace, because we have to grow at a faster pace if we are a credible player. My own feeling is that Nasscom estimates are in the mid-range and we are expected to do better than that.

vageesh@thehindu.co.in

rajesh.kurup@thehindu.co.in

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