The Tata Consultancy Services (TCS) stock plunged four per cent as the company yet again missed its revenue growth estimate. N Chandrasekaran, managing director and chief executive, in an interview with Shivani Shinde Nadhe and Sheetal Agarwal, acknowledges the market is punishing the firm for not meeting expectations and says 2015-16 will be a good year but some sectors will struggle. Excerpts.
Are you satisfied with the growth numbers of 2014-15?
We are happy with the way we have performed. An incremental revenue of $2 billion is the best so far, the net margin has expanded, and we have good deal wins. But we have missed the estimate of the Street by $15-20 million for the last three quarters and that has pulled down market expectations. I have realised that the $15-20 million window matters, for me it’s a margin of error. It’s like you run several races and then you lose one.
There are have been surprises. Energy came as a surprise, telecom was a surprise, and Diligenta has been having problems. I think our past performance set market expectations at a level that even a slight miss does not go down well.
Telecom seems under pressure. What is pulling down the sector?
I think the communication services provider segment is going through a period of reinvention. They are also going through pressure and changes. It’s not a steady flow of deals. Then we have had issues with telecom in India. Despite our diversified presence, these verticals have affected growth.
How does 2015-16 look like in terms of budgets and the troubled verticals?
We have seen growth in banking and financial services. Our deal order book looks good. Insurance services, though below the company average, are doing well. Diligenta is down and will remain so. In 2015-16, we have headwinds. Telecom, I cannot predict. Energy is hit because of the macro environment. Diligenta will continue to be slow. Every deal on the Diligenta platform is a large deal. It’s a transformational deal, the business case is extended for five years at least and, hence, the sales cycle is long. But all other areas will grow in 2015-16. All six verticals and geographies will grow.
I think India will not be volatile, it will grow. One of the reasons for this is we don't have much in the government sector. We do expect it to take off. Some of the deals we have done with the government have been great from a feedback perspective but from a financial point it has not been the same. When we look at government deals we will be more diligent.
How do client budgets look like?
Discretionary spending on digital will grow. This is an area we will see transformational deals. We also see growth in traditional deals. Lots of clients are looking at their infrastructure set-up and moving to shift to the cloud. This will give us volumes, and digital will be transformational.
Several infotech majors are either creating funds to invest in start-ups or setting up incubation centres. What is TCS' strategy?
For us, start-ups are part of the co-innovation network. It is not something new, we have been working on this for a few years and have a strong ecosystem. Our approach to start-ups is partnership.
If we feel the work done is good, we help them. We are also investing in innovation. Our cloud platform revenue that we shared for the first time is all built at TCS.
Investing in start-ups is a different business. Either you can be partner or fund it for returns. Our interest is partnership.
You spoke about an automation platform that TCS has built, can you elaborate?
We call it services-as-a-platform. Our neural automation platform is built on advanced artificial intelligence and neural science technology. It is a self-learning system. You can put it in an environment and it starts learning it.
For instance, you want to develop an application. Currently it takes two days. This platform will do it in a few minutes. It is prepackaged software, as it solves problems it keeps on adding features. We have done five pilots with five customers from banking, retail, manufacturing and utilities. The feedback has been positive. We will roll this out in a couple of months.
Do you think increased automation will impact hiring?
No. The talent gap in the industry is huge. The technology business is expanding. Skills that are required are not available. All of us have learnt new technology all the time. I do not believe that automation is bad, it will bring in agility. The growth of technology is so fast and profound that you need this. It also means that we will need to retrain people. I started with mainframes and then worked in other technologies. There is so much to be done in technology in the years to come.
Several analysts feel the employee bonus is a big drain...
It is about what is fair. The value of the company has gone up 10 times. We have always rewarded shareholders. We took this up with the board and got a go-ahead. It is a one-time payout. It is not a retention bonus. It is about thanking our employees. When we went public we gave a stock grant, that was also a thank you. When we gave that it was with no strings attached. Everything is not a contract.