Thursday, July 17, 2008

TCS is on the growing path

The first quarter results of this financial year for India's largest IT services provider Tata Consultancy Services (TCS) were muted. The company made a net forex loss of around Rs 75 crore and could not gain from the rupee fall against the US dollar. S Mahalingam, chief financial officer and executive director of TCS, in an interview with Shivani Shinde, explained the company's hedging policy and strategy for the road ahead. s your $10 billion (approximately Rs 43,000 crore) target by 2010 still achievable given the current scenario?

Yes. We are very much on track. It's not that the growth will be at the same numbers but the momentum is certainly there. You need to understand that when you do these kind of predictions, we do that on the basis of the addressable market. During the last two years, we have done very well in terms of dollar growth. Besides the competence of the organisation to scale up in variety of things like broadening of the services basis, looking at different verticals and creating an intellectual property base will make it possible.

Your huge forex cover did not help you this quarter. What's the current position?

The cover would be in the order of $2.2 billion (over Rs 8,500 crore). Of which a substantial amount (around 80 per cent) would be in options. Once you plan a hedging strategy you can take a position. But the issue is the volatility and the premium attached and related cost. I can take a forward hedge, as there is no cost to it.

But the problem is that I lock myself at a level and when the rupee depreciates, I cannot take advantage of it. While I might have some protection it might not be good for TCS. Hence getting into Options is better but it requires capability to make it effective.

You said you are not hedged from May onwards. Could you explain?

Essentially you want to hedge future revenue. We started with $2.2 billion (over Rs 8,500 crore) of which $1.1 billion represented hedges for Q1. What I mean is I have not increased our revenue hedges beyond that point. In this quarter I have close to $650-660 million in Options and in case of $250 million, we have an upside participation of Rs 41.50.

That's why I say if the rupee continues to trade at Rs 43 we will end up making a loss. However, you cannot predict the rupee movement. We think it will be in the range of Rs 43-45 per dollar.

The company has $1 billion (nearly 43,000 crore) in cash. Any acquisitions on your mind?

(Smiles) It is a good number to have. But then you are also growing at the same time. For instance, we are going to different geographies and you need to start spending for scaling up. Besides you need additional investment for certain niche capabilities like in products' area and for which we might like to buy such assets.

It does not need to be big. Moreover, it is also a pschycological factor to have some cash just in case of a rainy day. While we are quite happy at this time, it is not a pile of money which can be used for acquisition or buybacks, etc.

So what is your acquisition strategy?

It will be for bridging certain competencies in the products or skills' arena. We could also look at an acquisition if it gives us enough regional penetration or it could be some specific kind of scaling up like in the BPO infrastructure, etc. We will look at all the option but more importantly anything that can make us jump start operations.

How is the company planning to grow its Europe business?

We are looking at countries like Germany, Nordic countries and some pockets like Switzerland from where we want to increase business. We are pushing ahead in the Western Europe. With a centre in Hungary, which takes care of a local presence and language capability, we are very much on track.

Going ahead what are your concerns?

We did talk about cautious optimism. So that has to be kept in mind. The second is the quality aspect and for which there are investment to be made.

Source : The Businessstandard dt. 17 7 2008

No comments: