2019 to be better than 2018 in terms of deal pipeline, order book and visibility on margin: Rajesh Gopinathan, TCS
- Double digit growth is 100% our targeted trajectory.
- In 2019, we are going in on back of a very strong order pipeline.
- Business 4.0 is about embracing risk and that is what TCS has done.
2018 was a great year for your shareholders in terms of visibility, deal pipeline, order inflows and customer interaction. How exactly is 2019 different from 2018?
Rajesh Gopinathan: We went into 2018 on the back of very large order inflows coming from a mega deal and a bit of a soft year behind us. The entry into 2018 was on a very different construct compared to the entry into 2019.
In 2019 we are going in on the back of a very strong order pipeline, both bookings as well as the deal pipeline constituting mainly of fairly standard orders rather than one-off mega orders and we have been seeing this demand ramp up and growth acceleration through the course of the year.
We are going to get into 2019 on a growth trajectory which is very different from the trajectory that we were on last year. And to back that up, we have been hiring and participating strongly in this recovery. We are quite optimistic going into 2019.
You have hired more, your deal pipeline is better and there is a structural reboot in the business which you are doing. Is 2019 looking like that it will be better than 2018?
Rajesh Gopinathan: Our entry into 2019 and the visibility that we have is much better than where we were earlier. Obviously, we hear the same headlines. We also hear the same news about macro instability and various items. Barring that, we are quite confident about the demand that we see from the clients that we are talking to.
The real comeback for TCS has been due to the stabilisation in the US and the BFSI vertical. Can Brexit play the spoilsport?
N G Subramaniam: One is stability and the other thing is the kind of offerings that we have launched during the year. In terms of digital offerings, block chain, IoT, in every single area, we launched a number of digital offerings that helped.
Second, the whole business 4.0 thought leadership framework is receiving a tremendous amount of traction and participating in growth and transformation opportunities.
We have always said that Brexit is a mixed bag. We do not know what is going to happen but whatever happens, today UK and Europe business is growing upwards of 20% year-on-year for us. The demand environment in UK or on all our major markets have been good.
We are participating in a good number of digital opportunities. We are participating in institutions which are moving things to Cloud, all the Cloud migration and digital interactives, For each of the opportunities, we see a tremendous amount of demand.
The pipeline reflects that $5.9 billion of TCV for this quarter is far superior than what we thought. Overall, we are pleased with where we stand in this financial at this point in time. Business 4.0 is about embracing risk and that is what we have done. We see that contracts are getting signed and so we hired a lot more in this particular quarter to make people ready to take on those opportunities and move forward in 2019.
From a market standpoint, what investors and shareholders would like to perhaps understand is that $6 billion roughly is your digital book. It is growing at 40%, the base was low, but at $6 billion can you grow at that rate?
N G Subramaniam: I think so. I have always maintained that over a period of time, a good percentage of what we are going to do will be digital while we continue to operate in some of the traditional services. A lot of these things are getting integrated. Things like Internet of Things, digital interactive, the apps that you do, the cloudification are all getting integrated into the digital core in the back.
In that context, the share of digital revenue will continue to increase. The demand and the pipeline that we see also reflect the trend of sharing. We should be growing a lot more in digital. The acquisitions that we have made whether it is W12 or BridgePoint, are going to help in accelerating an integrated digital-core led digital transmission story for us.
Let us clear the air on margins. Now scale is back, business is back, pricing is back but on the margin front, there has been a drop. Can I safely say that what has been your preferred band of 26-28% may not be the ideal achievement for this year?
Rajesh Gopinathan: I would not say that at all. If you look at the nine months’ numbers, our margins have expanded by almost 120 bps compared to where we are. Whatever happens, we are going to be very close to the 26% in any case as we exit 2019 and from a more medium-term perspective. we see no structural challenges to that preferred band that we are looking at.
There will be periodical volatility either introduced through currency or through fluctuations or volatility in demand but we are focussed on one thing; our investment agenda and our focus on maximising demand take priority over cost management and margin management. We are quite confident about the position that we are in and we should be able to address some of these cost challenges that we are seeing over the course of time.
Some of my friends are of the view that TCS in this year could go for growth and compromise on margins. Are they right?
Rajesh Gopinathan: TCS has never had a culture of thinking of growth and margin as mutually exclusive. We have always maintained that these are two different aspects of the business. Your friends can rest assured that our investment agenda and our aggressiveness in participation in demand and our innovative deal structuring and our hunger to participate in very innovative new solutions sets and new markets, have not diminished in any form and we are in a very good position to continue that agenda.
Is double digit growth the new normal? Why don’t not you give me a single answer, yes or no?
Rajesh Gopinathan: Double digit growth is 100% our targeted trajectory and we have no intention to get off it.
Can US macro spoil the party somewhere? We do not know which way US economy would move, we do not know what will happen to banks now, we do not know what will happen on trade war? Is that a risk or is that something which is only in headline and will not affect business?
N G Subramaniam: There is always a risk depending upon how it pans out but consumer spending during the holiday period registered 5-6% growth, The overall consumer confidence in the US market seems very high.
Why is consumer confidence so high? Why has there been a dramatic change in demand in the last 12-18 months?
N G Subramaniam: The technology developments -- whether it is related to digital or non-digital -- are maturing fast. The ease of doing business with respect to these technologies and the way that customers are able to deploy and access what they want, is clearly a visible change over what I have seen in 2018.
That has contributed to people having a good experience. The technology has been a great leveller and that is a way people see opportunities and, the possibilities of getting connected on one hand. The second is that each of the products that are getting launched, offers something new, some possibilities.
From the corporate side, the opportunity to create and participate in ecosystems was helped by the seamless creation of these ecosystems. That is the biggest positive momentum that I see -- both on the institutional and enterprises side and the consumer side of it,which has resulted in the demand and the positive momentum.
You are not calling out any tough spot. Whether it is the BFSI space or Diligenta or Japan or LatAm, all are looking good. But should markets take heart from the fact that you have hired 23,000 new employees in the quarter gone by? It was 7,000 plus last year and so there has been 3X more hiring.
Rajesh Gopinathan: Absolutely. Both in closure as well as on the pipeline, we are calling the demand out. We are sharing that visibility with all our stakeholders and we are backing what we see by hiring strongly to be in a good position to service that demand. We are backing our own visibility and hoping that that will play out well.
According to you 2019 in terms of deal pipeline, order book, engagement, visibility on margin it is much better than 2018?
Rajesh Gopinathan: Absolutely.