Our ability to go through tech cycles provides long-term sustenance: Rajesh Gopinathan, TCS
- We will invest wisely focussing on what are the possibilities.
- What we are calling legacy today was the digital of 2005!
- Investments made in the last 12-18 months paying dividend.
It has been an extraordinary achievement for TCS in terms of delivery and all round performance. When we started the year, a double digit growth was a challenge. Now the view is double digit growth is coming but can that be stretched to mid-teens?
Rajesh Gopinathan: The trick in life is to enjoy your success step by step.
Is there aspiration to go back to mid-teens growth?
Rajesh Gopinathan: Let us be very clear on this. We have worked really hard as a management team and as a company. I am personally very proud of and want to thank the team and our customers and stakeholders as well who have been quite supportive. This was achieved in the face of tremendous odds and general scepticism all around. So, it is a big landmark and it is an opportunity for us to step back, enjoy it as well as to reset and say okay this is done, where will we go from here?
Most importantly, this has got a very long-term value for us. Once again, we have shown that a technology cycle is not what defines the company. Our ability to go through technology cycles is where long-term sustenance comes from. I am sure this is not the last time that technology will change massively and the next time when it comes, we will be able to look back at our experience and reset ourselves.
So, it is very important both from the immediate as well as from long term and this opportunity, that we have is something that we will invest wisely focussing on what are the possibilities and what should be the basis. Should the basis be going back to mid-teens growth? Should the basis be further diversification or relooking at the business model and adding new elements to it?
There are many dimensions in which we could actually think about how we want to plan for the future and it requires proper thinking through and this relates to our ability to say that we have now achieved the target and we are confident that we will deliver on it this year as well as exit with momentum. It frees up a lot of mental bandwidth for all of us to be able to look at it in a more positive and considered way. So allow us the time and as we execute on it, we will talk about it.
Can I say that in terms of change of technology and growth, the momentum would continue for 3-5 years and this is not just a seasonal sugar rush for 2-3 quarters?
Rajesh Gopinathan: It is obviously sugar rush. But the shift into digital is now given and to see it in perspective, what we are calling legacy today was the digital of 2005! All the web-based technologies that were there were as transformative into the mid 2000 as digital is today. So, the same thing will happen here also. There will be a large-scale shift and later on something else will come and replace this. We need to embrace it because this constant change is what keeps us relevant to our customers and our ability to stay ahead of that wave and to invest in it and to embrace it and to lead it is what actually differentiates us.
Why are you growing faster than the competition? Are you gaining market share because the market itself is expanding?
NG Subramaniam: By being good.
That is an academic answer.
NG Subramaniam: The overall investments that we have made in the last 12 to 18 months in terms of making our people digital ready, Agile ready and the kind of new products and services that we have created all make enormous sense and are are of enormous relevance to our customers. We are able to participate not just in the efficiency game but also in the growth and transformation game. That is the key thing and the business 4.0 thought leadership framework that we came up with which essentially is a framework that enables our customers to adopt the digital technologies in a more systematic manner and then drive their growth and transformation agenda. There has been phenomenal amount of traction in the market place across the verticals and I think that is the key.
American economy is expanding and most of the global pundits are saying that American economy is in the last leg of its economic expansion. If the expansion stops because high interest rates, could that backfire for your business model?
NG Subramaniam: See there will always be something. There are many things that will be positive and a few things will be negative. Business is all about managing that volatility and then see what makes sense for you to operate and then course correct. The agility that TCS has demonstrated over a period of time in terms of course correcting and adjusting ourselves when issues have emerged in the market, has been second to none. I have seen this industry for the last 35 years and in every such situation when there has been a transition or something like Lehman Brothers kind of an issue has come up, our ability to listen to the customers and then internally course correct to stay relevant and quickly adjust ourselves has been the hallmark of TCS.
Today the economic indicators are positive, there is an overall buoyancy in the market. We are seeing demand and we are out there with the right set of products and services to catch up with the demand.
Given that we are nearing the national election cycle, do you think you India business could be slightly volatile once again?
Rajesh Gopinathan: India business has both the public sector and the private sector in there. We have been pivoting from a broadly government and public sector portfolio into a much more balanced portfolio. This economy definitely is impacted by election cycles and it is still thin whether it is an election cycle or a monsoon cycle or has global flows. All of that has a significant impact. I would not say that we will not be impacted, but the big shift that we are doing is pivoting from public and PSU as the primary segment into corporates as the primary segment.
What could crush your optimism, what could go wrong?
Rajesh Gopinathan: That is why I said optimism is not just about the short term, medium term demand, our optimism is really bolstered by cresting the peak of a significant change and that is not going to be crushed easily. It is something that we are going to carry for the next decade or more because this is the most critical aspect of our industry and our ability.
We have been very systematic about building in resilience into our business. We have been early in opening up new geographies, figuring out what is the right business model for it, making the investments, creating the positions so that we understand it whether it be going into the non English speaking markets of Europe where today our investment in Germany is really paying rich dividends and building out tough markets like France and Japan. The investments that we have done in Latin America, these all work in building resilience so that you are not single sourced into one and you will obviously have maximum benefit coming from whichever is the growth engine at any given point in time. Today, US is the growth engine and that is where we will participate. Tomorrow, if it shifts, we are well positioned to be able to participate across the world.
When we spoke a couple of years ago, digital was barely 10% of the total business, it is almost 30% now. If history is anything to go by, with each change in technology, TCS margins have only gone higher and in market history, may not repeat itself but it rhymes. Will history rhyme again?
Rajesh Gopinathan: In the context of a 26-28 band, what we had said is that 26-28 depends on both growth as well as currency depreciation as two strategic levers in that business model on the basis of which, we say we should be able to maintain stable margin. So margin stability itself is a big task and underlying it is this assumption that there will be a constant relevance because if technology change were to stop, we will actually start losing relevance with the customers and then become a commodity.
That is the lever that we were talking about saying that as this new growth engine kicks in we should be able to get back into our target band and we have started coming back because you are seeing the growth coming in, seeing the currency start readjusting back to the long-term trajectory and we are coming back into that band of 26-28. That is a stable band on which the business model is structured and unless some of these fundamental pillars change the band should maintain. But these pillars are sticky in nature so you will go through phases of it again going back and coming back in it or if there is a one off benefit it might even overshoot on the other side.