New Deal Wins' Conversion To Revenue Intact, Topline Sluggish Due To Lack Of Discretionary Demand: TCS

The proportion of new deal wins into revenues is "intact", a senior official at largest IT services company TCS has said, attributing the sluggish revenue growth to the adverse impact on discretionary demand because of economic headwinds.

Stating that discretionary demand can contribute as much as 30 per cent of incremental revenues in a quarter, the company's chief operating officer N Ganapathy Subramniam told PTI that the September quarter results were impacted due to this aspect.

Clients are choosing to conserve cash given the economic climate and choosing to defer spends where they do not see immediate returns on investments, which has impacted the discretionary demand, he said.

He, however, said that the proportion of revenue it bags from new deals has not been affected. The company has reported signings of over USD 10 billion for three consecutive quarters.

"TCV (total contract value) to revenue conversion rate is intact," Subramaniam said, explaining that there are a slew of other factors which influence the revenue growth in a quarter.

The overall revenue was supported by contribution from new deals and the discretionary spends by clients, while cost optimization and end of contracts prove to be a drag, he explained.

Discretionary demand is typically a short-term consulting engagement which is fulfilled by allocating a few resources, outsourcing work to subcontractors or by lateral hiring, Subramniam said, adding that it contributes an 'extra' to provide a fillip to the overall revenue pie.

When asked about the outlook on the discretionary demand, he said it is very difficult to have any prediction at present but added that it all depends on how the global economy shapes up.

"(even) economists are not able to say when this economy will bounce back. It is election year in the US, and election year in India. The UK will also probably go for an election. With all this, there is more that can change," he added.

It can be noted that the company reported revenue of Rs 59,692 crore in September quarter, but was up only marginally when compared with Rs 59,381 crore in the preceding June quarter.

To a question on shifting to working from office, Subramaniam said the company has hired over 1.50 lakh people in recent times, who have not had the office experience, which helps drill the company's values and approaches into an employee.

Many of these staffers hired in recent times will get elevated to a supervisory or a managerial post soon, and it is important to instill such aspects, he added.

"Yes, we can do programming sitting at home, but programming is not everything. Business is a lot more than that. At some stage, you're not going to be a programmer. You are going to be something else," he added.

When asked if the company had to compromise on margins in winning the over USD 1 billion deal from state-run BSNL, the COO of the company made it clear that the company may have taken a strategic call on margins being below the threshold given the other prospects that such a work entails but made it clear that it is not a loss-making one.

The company has worked on the BSNL deal for over two years and is confident of having mitigated all the risks associated with the paperwork and the processes, he said, adding that it is about the execution now.

Subramaniam also hinted that given the sensitivities involved with Chinese suppliers, the client is willing to pay a bit extra for the alternatives which are imported from trusted sources and reliability, and added that TCS is adhering to tender specifications on this.

The company has adopted a frugal engineering approach on the BSNL deal, given that it is starting on a clean slate with no legacy systems and also integrated a lot of software on the hardware, he said.