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Strong growth to continue: Rajesh Gopinathan, CEO, TCS

Gopinathan focuses on clients, IP rather than worry about US visa woes or recession.

Apr 15, 2019, 07.11 AM IST
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Tata Consultancy Services looks to sustain double-digit growth as companies step up technology expenditure that’s critical to their future, its CEO Rajesh Gopinathan told ET in an interview following fourth-quarter earnings, which were announced on Friday.

Net profit rose by a better-than-expected 17.7% and TCS said it had the strongest revenue growth in 15 quarters. The company is being courted by CEOs of global organisations, who want the TCS brass to talk to their boards and management teams to explain how technology is disrupting businesses across industries. Edited excerpts:

Do you see double-digit growth continuing?
I see no reason why it would not happen. The inherent demand is there. We have seen the supply (talent) side sorted out. The demand is there, talent is there... subject to any external impact, we should be able to sustain this kind of growth.

We are talking about technology becoming really integral to the value chain of multiple industries. One way of characterising that... in any industry (if) $100 is spent today and let's say technology has a 3% share of that. If you ask them... five years from now, will technology be a larger share of $100 or less?

Margins and Competitiveness
Almost invariably in every industry (the answer) is that it will be larger. As long as you’re disciplined (and) have a good portfolio of products and services, demand perenniality is phenomenal.

The US labour market is supply constrained, visa rejection rates are high. How is this affecting margins?
The visa situation will keep on evolving. It will reflect the politics of that time as well as inter-country dynamics. We need to be cognizant of it, and position ourselves to be able to deal with it. I don’t think we are particularly or individually impacted, as long as it is a common impact across the industry. It will have some cost implications, beyond that it doesn’t. Our thrust to the regulator is the same—make sure regulations are even handed and we are committed to be compliant with all jurisdictions we operate in. We push to make sure it is a level playing field. We will have to hire locally. We are making a strategic move of intervening early in the US supply cycle by integrating at high-school level.

Our programmes are intended to increase throughput of the supply chain. They have a phenomenal university system. We have to make sure we attract students to go through that. Margins at the end of the day are a factor of relative competitiveness. As competitive difference erodes, margins erode. If competitive difference is high, margins go up.

There has been talk of an impending US recession. What is your view?
Capital markets will be the ones that will be the most impacted, because they react fastest. Others react more slowly. I have given up predicting it. We are focused on our customers. Obviously, there is nervousness, everybody reads the same newspapers, listens to the same commentary. It is becoming an echo chamber. Our advice to our teams is that in times of uncertainty, increase contact with the customers. We also travel to get a first-hand feel.

You are investing aggressively on building IP. Does that mark a shift?
We are building IP embedded with the services we do. We are already building platforms and solutions to customers. As engineers, we look at the elegance of the solution. We are pricing for the effort. The effort has been reduced because of the elegance of the solution we have developed. We need to price it for the impact of the solution. We are leaving huge money on the table. Our pricing paradigms have to change. There are huge opportunities to do that.

The IT industry has seen turbulence. What do you foresee for it and TCS?
We are at an inflection point where technology becomes much more integral to organisations and this dynamic is only going to accelerate over time. You are seeing this in the automobile (sector) and in healthcare. Name the sector, you're seeing technology coming in and disrupting it. The first phase is typically disruption of the existing players, but then there is a mixed second phase, like what you are seeing in retail, where there is strong rebound from existing players. Like in any major shifts there are winners and losers. The important thing is that it is (because of) technology, we are well positioned to participate in this churn.

Are you seeing technology conversations shift from CIO to CEO and the boardroom?
As technology is becoming a strategic element of strategy, CEOs want to be directly involved. It is not just that we are reaching to the CEOs and boardrooms, they themselves are coming and investing time. Last time we had CEO of Marks & Spencer spend a day with us. They're investing their time directly, because this has become such a critical component of their strategy. We are walking towards them and they are walking towards us. The engagement levels are very high. They're calling us in to present to their board of directors and to the management teams.

Where do you see legacy companies fighting back?
In automobile industry, the whole electric car shift was supposed to kill off (traditional) auto companies. They are coming back strongly. Even in shared mobility space, the auto guys are going in with a strong presence. Tier I suppliers (to auto companies) are also re-architecting themselves. In media again, you are seeing a fightback. The game is still on but you can see the fightback coming. First the distributor gets power, then the content owner gets its act together and then the power game shifts. Netflix was smart enough to realise, it is quickly building a content engine before content partners with the distribution engine. Huge amount of money is being spent on it. Let's see how it plays out. Industry after industry is doing it.
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