Recently, we had a chat with CEO of TCS, Rajesh Gopinathan, regarding the digital growth of the company. Let us have a sneak as to what he has to say:
You said optimism is returning to the banking and financial sector but the optimism has not translated into spending. Why?
A year back the companies had no clarity on what is the basis of their competition with the emerging players in fintech space. You saw the banks go through a period of investing in fintech, acquiring fintechs, setting up VC funds and incubating fintechs. Now they have backed away from it. They feel fintech is part of the ecosystem and will not disrupt banks. Money is starting to move away from investing in fintechs to investing in projects where they will work together. That is where our participation increases. It requires strong partners like us who have a contextual knowledge and ability to deal with full spectrum.
TCS margins expanded 170 basis points. Is the margin expansion sustainable? The analysts are worried about it.
It is not rational commentary from the analysts. 120 bps came from operational efficiency and 50 bps from currency. From last year to this year our margins are down 90 bps out of which 60 bps is due to currency.
What is putting pressure on margins?
There are three factors. We operate in an environment where cost efficiency is high. Our salary hikes are indexed to domestic rates but prices are indexed to developed market inflation. This differential inflation is compensated by currency. In the last few years, due to government intervention, there have been short-term disruptions to the model. We are still structuring ourselves for a double-digit growth. There have been demand issues in a few industries. We have stayed the course and not significantly pulled back our sales force. We have not recalibrated ourselves to single-digit growth. We feel it is the right thing to do. Cutting back takes time but reinflating back takes more time.
If we pull people off the team it will take us almost a year to make a positive impact but if the growth comes back it will take even more time to fill up the teams. These are not short-term decisions. A typical cycle like that will take 3-4 years. As of now, we have not initiated that. We are more predicated on growth. But if see that on a sustained period we have the capability to cut back like we did in 2009. We pulled back massively from the field and drew 500 bps margin expansion post-financial crises.
The third element is we are investing in emerging technologies. We have trained 2,50,000 people. We don’t believe we hire new skills when we need them and fire old skills when they have run their course. We are systematically reskilling people. All three have acted against us. Currency has acted against us, lower-than-expected growth has acted against us and proliferation of tech in digital and the lack of scale in given one have a negative impact on the margin.
Well, it seems that TCS will be truly having a double-digit growth this time.