tata consultancy services limited · tata consultancy services q1 fy10 earnings conference call...

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Tata Consultancy Services Limited

Transcript of the Q1 FY10 Earnings Conference Call July 17, 2009 20:00 hrs IST (10:30 hrs US ET)

Moderator: Ladies and gentlemen good morning, good afternoon and good

evening. This is Melissa, the moderator for your conference. Welcome

to the TCS Earnings Conference Call.

Please note that for the duration of this presentation, all participants will

be in the listen-only mode. And this conference is being recorded. After

the presentation, there will be an opportunity for you to ask questions.

Should anyone need assistance during the conference call, they may

signal an operator by pressing * and then 0 on your touchtone phone.

At this time I would like to turn the conference over to Mr. Kedar Shirali,

Director of Investor Relations. Thank you and over to Mr. Shirali.

Kedar Shirali: Thank you, Melissa. Good evening and welcome everyone. Thank you

for joining us today to discuss TCS’ Financial Results for the First

Quarter of Fiscal Year 2010 that ended June 30th 2009.

This call is being webcast through our website and an archive

including the transcript will be available on the site for the duration of

this quarter. The financial statements, results, presentation and press

releases are also available on our website. Our leadership team is

present on this call to discuss our results.

We have with us, Mr. S. Ramadorai, Chief Executive Officer and

Managing Director.

S. Ramadorai: Good evening, everyone.

Kedar Shirali: Mr. S. Mahalingam, Chief Financial Officer and Executive Director.

S. Mahalingam: Good evening and good morning.

Tata Consultancy Services Q1 FY10 Earnings Conference Call July 17, 2009 20:00 hrs IST (10:30 hrs US ET)

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Kedar Shirali: Mr. N. Chandrasekaran, Chief Operating Officer and Executive

Director.

N. Chandrasekaran: Good morning, good afternoon and good evening.

Kedar Shirali: Mr. Phiroz A Vandrevala, Head of Global Corporate Affairs and

Executive Director.

Phiroz Vandrevala: Hello everybody.

Kedar Shirali: Mr. Ajoy Mukherjee, Head of Global Human Resources.

Ajoy Mukherjee: Hi everyone.

Kedar Shirali: Ram, Chandra and Maha will give us a brief overview of the

company’s performance followed by a Q&A session. As you are aware

we do not provide specific revenue and earnings guidance. Let me

also remind you that anything said on this call, which reflects our

outlook for the future, or which can be construed as a forward-looking

statement, must be reviewed in conjunction with the risks that the

company faces. We have outlined these risks in the second slide of

the results presentation available on our website.

With that, I would like to turn the call over to Mr. S. Ramadorai.

S. Ramadorai: Thank you Kedar. I am happy to share that TCS has delivered a

stellar quarter, made possible by very strong operational execution.

The net profit for this quarter stands at Rs 1,520 Crores, an increase

of 16% quarter-on-quarter and up 22% year-on-year. Driven by good

execution on the ground, the operating profit at Rs 1,789 Crores for

this quarter, shows an increase of 5% quarter-on-quarter and up 26%

year-on-year. Our earnings per share is Rs 7.77, an increase of 16%

quarter-on-quarter.

Revenues for this quarter are at Rs 7,207 Crores, an increase of 50

basis points quarter on quarter and up 12% year on year. Net margin

at 21.1% is up 278 basis points quarter on quarter and up 172 basis

points year on year.


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The global economy across countries continues to be weak, with job

losses in various industries. We are watchful of the situation and we

do not rule out the fact that more surprises can be expected.

In times like this, I believe we have managed operations exceptionally

well. Our full-services play global delivery capabilities, range of

offerings and the resulting value proposition have played out very well.

It indicates our alignment to strategic intent and clearly demonstrates

our single-minded focus on our customers.

The overall growth has been broad-based, across major and emerging

markets and our investments in people and capabilities in these

markets are yielding results. We have increased our wallet-share with

our top ten clients as well.

Apart from the traditional sectors such as banking, financial services

and telecom, our ongoing investments in verticals like energy, utilities,

pharma and healthcare are beginning to show results. This is evident

from the current wins listed for this quarter and we are optimistic about

these sectors spurring growth in the future as well.

Looking ahead we shall continue to excel operationally and work

closely with customers and stakeholders and help them experience

certainty.

I request Chandra to add a few words before Mahalingam, our CFO,

speaks. Thank you.

N. Chandrasekaran: Thank you, Ram. Overall, it has been a very happy quarter because we

have delivered growth and a good volume growth at 3.56%. The BFS

sector, in particular, and the US geography have shown signs of

stability and have given us growth.

We are extremely happy with the execution. The offshore revenue has

increased by 270 basis points. The gross margin is up by 20 basis

points and the operating margin is up by 113 basis points.


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We had good deal-closures; the eight deals we closed are well spread

out. From a market point of view, five of them came from the US and

from the sector point of view, two came from manufacturing, and the

remaining six, each came from each of six different verticals.

So I think we could not be happier, because when we started the

quarter, we were not thinking in terms of this level of volume growth in

the quarter.

Over to you, Maha.

S. Mahalingam: Thanks Chandra. As has been emphasized both by Ram and Chandra,

this has been a quarter of growth in revenue and a bigger growth in

margins at every level. We had lower costs in both the COR and

SG&A, a lower forex loss, and an increase interest dividend income.

So overall, we have delivered growth in revenue, EBITDA, operating

margin and net margin.

Let me start with the top line. The impact of each of the drivers is as

follows: Volume up by 3.54%, pricing down by 25 basis points,

exchange movement down by 24 basis points, effort mix down by

2.56%, so totally it is 0.49%.

As you know, even the negative ones are not all that negative.

Offshore shift, certainly of this magnitude, is a huge plus from the

margin perspective.

On the operating margin side, the breakup of 113 basis point

improvement is as follows: Currency minus 41 basis points, offshore

shift positive 95 basis points, rate productivity change negative 34

basis points, SG&A efficiencies positive 93 basis points, totaling 1.13%

improvement.

We tweaked the cost parameters using the levers that we have always

talked to you about. Through offshore shift and headcount

management we brought down the overall employee costs by another

65 basis points this quarter. Continued scrutiny of every expense item


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helped us bring down the non-employee SG&A costs by 101 basis

points.

Let me move on to currency, a topic which has an impact on our results

whether we hedge or do not hedge. There was currency volatility in Q1,

but our policy of full receivables hedging continues to protect us.

We did not take any new revenue hedges in Q1 and continue to wind

down those old hedges with limited upside participation of up to Rs. 41.

Out of the total $349 Million we had for FY10, $123 Million of hedges

matured in Q1 and $112 Million are maturing in Q2.

Forex loss for the quarter was Rs 841 Million, 57% lower than the last

quarter. Interest income was up 45% Q-on-Q with a yield of 7% and we

also have an income of Rs 471 Million from Mutual Fund redemption.

All this has resulted in the other income of positive Rs 194 Million this

quarter, compared to negative Rs 1.3 billion last quarter, expanding the

net income margin significantly by 278 basis points Q-on-Q to 21.11%.

EPS growth this quarter was 15.7%.

Lastly, we brought down our DSO by another two days this quarter.

Cash and liquid investments stood at Rs 61,249 Million.

In closing, our performance this quarter is a vindication of our approach

during the downturn, of continuing to invest in our business while

maintaining pricing discipline and improving internal efficiencies.

Customer proximity also helped us to benefit from the increase interest

in offshore outsourcing, while our cost management initiatives

delivered margin expansion all round.

And the resultant cost discipline is a sustainable one that should stand

us in good stead going forward, regardless of whether those now

famous “green shoots” are the real thing or just weeds. Thank you.

Kedar Shirali: Thank you, Maha. Melissa, we can open the lines for Q&A now.

Moderator: Thank you sir. Ladies and gentlemen, we will now begin with the

question and answer session. Anyone who wishes to ask a question


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may press * and 1 on their touchtone telephone. If you wish to remove

yourself from the question queue you may press * and 2. Participants

are requested to use only handsets while asking a question. Anyone

who has a question may press * and 1 at this time. The first question is

from the line of Moshe Katri from Cowen & Company. Please go

ahead.

Moshe Katri: Yeah, thanks, and congratulations on a very well executed quarter.

Can we get some additional details on volume growth, pricing trends,

maybe by vertical, some deeper details on that? And then deal

pipeline, deal funding – has that improved? And then it seems that the

BFSI vertical is resurging, maybe we can talk a bit about the nature of

the work and the pipeline? Thanks.

N. Chandrasekaran: Volume growth in terms of industries – primarily, the BFS sector has

shown some signs of stability and growth. We have seen that this

quarter and we hope that it will continue and hopefully there are no

shocks. And the other sectors which are doing well for us – Retail is

continuing to do well; Pharma, we are seeing growth opportunities and

volumes; as well as Utilities.

Then the three sectors which continue to worry us: Manufacturing,

Telecom, and Hi-tech. There can be surprises here. We are still

watching them carefully at this point in time. We are not confident with

any degree of certainty that they will grow or not grow.

In terms of spending, the discretionary spending is still not up. It is

more offshoring related. There are some discretionary projects

happening in some clients, so we have to still be watchful. We were not

hopeful of this kind of volume growth, 3.6% at the beginning of the

quarter and it got better. We were able to execute very well and

capture those opportunities. So we are watching it carefully, but very

difficult to say with any degree of certainty.

In terms of the deal pipeline it is good. We have closed eight deals and

we are happy about it because it is well spread out, we got a deal each


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in Retail, Hi-Tech, Media, Utilities, Pharma and couple of deals in

Manufacturing, so they have been good, all round wins.

Going forward, we are pursuing atleast 20 important large deals and

again the deal closures have to be carefully watched. They are well

spread out. There are deals in the US, there are deals in Europe, and

in the emerging markets.

As for pricing we have been saying that pricing pressure is still going to

be there. We maintained during the last analyst call, as well as at

meetings during the quarter, that pricing is going to be affecting growth

this year in lower single digits. We still stick to that statement.

Moshe Katri: And then, some more details on the nature of the work in financial

services – maybe break it down by Banking, Financial Services and

Insurance?

N. Chandrasekaran: Most of the work so far, has been in the Banking side and in the

Financial Services side. Insurance, I think, is still affected. Recovery

and stability in Insurance is yet to come.

In Banking and Financial Services, the nature of work is: offshoring

work, integration work and some BPO opportunities.

Moshe Katri: Thanks and nice quarter.

Moderator: Thank you, Mr. Katri. The next question is from the line of Julio

Quinteros from Goldman Sachs. Please go ahead.

Vincent Lin: Hi, thanks. This is actually Vincent Lin sitting for Julio. Just wanted to

get a sense on the volume growth. The 3% you posted this quarter

turned out to be better than your original expectations. Just wondering

– I know you do not provide official guidance - but looking out into the

September quarter and in the second half of 2009, should we expect

positive volume growth to continue, given that it seems like pricing

stability is better at least versus last quarter. Just in terms of the

volume growth, whether you can provide some more color in terms of

expectations into the second half this year?


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N. Chandrasekaran: As I said with regard to volume, we see the Banking sector stabilize

and there maybe some opportunities there. Retail sector and Pharma,

Utilities – those sectors are giving us comfort.

But as I said, three sectors – Manufacturing, Telecom and Hi-tech –

including our large telecom client, are showing declines. We do not

know how they will perform in Q2. These sectors are to be watched

very carefully. So at this point in time we cannot give any degree of

certainty in terms of volume growth as far as the second quarter is

concerned.

I think the best way to look at Q3 and Q4 would be to watch Q2 for

some kind of stability to return to these sectors, and then we will be

able to give a reasonable degree of comments on Q3 and Q4.

Vincent Lin: Got it. That is helpful. And then from a client perspective, it seems like

the contributions from top clients increased pretty meaningfully over the

last quarter especially the top account. Just wondering if you can

provide some specific commentary in terms of what actually drove the

increase and whether that is sustainable in the next couple of quarters?

N. Chandrasekaran: The top one client, top five and top ten have grown this quarter. The

top one client, in fact, has changed and that is what we expected. And

we think that, except for the top telecom client where we have some

issues, we have done reasonably well.

Vincent Lin: Any specific reasons, just in terms of kind of work that actually drove

the increase?

N. Chandrasekaran: I think the negative surprises that we had in the previous quarters have

been arrested. That is the only way I would put it. We started to see ramp ups in these clients. Albeit small, but we started to see ramp ups.

And previously, in last two quarters, when we had a lot of shocks and

surprises and decline in volumes, cancellation of projects, we had said

that we are going to watch out for those carefully for three months in a

row. And nothing happened to these clients. That was good news.


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Vincent Lin: Got it. And just lastly, coming back to the revenue growth, I think you

provided lot of details in terms of component on quarter over quarter

basis. I was just wondering if you can give us the data in terms of year

over year, what the constant currency organic growth would look like

for the June quarter? Thanks.

N. Chandrasekaran: Probably, Kedar can send you a mail on that. He is taking an action

item. We can give you those figures offline, but basically I think

business performance wise even year on year even if you exclude

[TCS eServe numbers] I think the performance has been satisfactory.

But he will give you the numbers.

Vincent Lin: Okay, great, thanks.

Moderator: Thank you, Mr. Lin. The next question is from the line of Diviya

Nagarajan from JM Financial. Please go ahead.

Diviya Nagarajan: Hi, congrats on a good quarter. Chandra, you spoke about volume

having surprised you somewhat, from what you had thought of it at the

beginning of the quarter. Can you throw some color on where exactly

the surprise came from: was it a specific set of clients or the specific

vertical that you saw the volumes surprise come from?

N. Chandrasekaran: Diviya, I want to correct you. I did not say I was surprised. I said that

we were not certain about committing a volume growth at the beginning

of the quarter because of the uncertainties that prevailed in the market

and whatever shocks could come.

We said we would have to watch for three months in a row to make

sure that we do not get a negative surprise from any client. And, we did

not get any unanticipated surprises.

The BFS sector started to show some [positive] signs and we started to

get some ramp-ups and bag some projects and that has been good.

I basically want to clarify it has not been achieved because of some

one-off positive surprise. There is no one, one-off positive surprise that


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has brought growth. It has been a good all-round performance,

incremental growth happening in several accounts across verticals.

Diviya Nagarajan: Right. That is helpful. And secondly I think somebody earlier also

asked about this – given that we did not have any positive surprises, is

it reasonable to assume that this is a definite return to positive growth

rates and the volume decline that we saw the last quarter is behind us

now?

N. Chandrasekaran: Ram has emphasized it in his opening speech. I want to reemphasize it

now: at this point in time, we still have to be cautious because as I said,

we would like to see some stability in Manufacturing, Telecom and Hi-

tech sectors. Until then, we will have to be very cautious.

Diviya Nagarajan: Right. I just have some book-keeping questions and will probably come

to that later. Thanks.

N. Chandrasekaran: I am optimistic but we are cautious.

Moderator: Thank you, Ms. Nagarajan. The next question is from the line of Ed

Caso from Wells Fargo Securities. Please go ahead.

Ed Caso: Good morning, good evening. My question is around your hiring trends

and expectations and how all the protectionist chatter in the US is

impacting all those moves. I know you are very successful in moving

work offshore and improving margins, but has that slowed some of

your efforts to hire local US employees?

Ajoy Mukherjee: As far as hiring is concerned, in this year what we have said is that we

had given offers to the campuses totaling about 24,885 and we will be

honouring our commitments that we have made and they would be

joining us during this particular year, in a staggered manner starting

from Q2 onwards.

Now as far as the US team is concerned, we had also said that for our

Cincinnati delivery center we would be hiring 250 from various

campuses within US. We have already given offers to about 111 and

close to 99 people have already accepted that offer. 38 of those have


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already joined us in Q1 itself. So we are on track and we are going as

per our plan. As far as the lateral hiring is concerned, that would go on

based on very customer-specific requirements only.

Ed Caso: Great. Thank you.

Moderator: Thank you, Mr. Caso. The next question is from the line of Rishi

Maheshwari of Enam Asset Management. Please go ahead.

Rishi Maheshwari: Hi, congratulations on a very nice quarter. For the last three quarters,

you have been maintaining that cautious approach towards macro

environment, you expressed your concerns with client-specific issues

and you still turned out a quarter which has been, by far, your best

quarter in your listed history. My question is, are we therefore looking

at similar caution ahead while the macro environment still looks not so

good and are we still racing ahead with similar growth rates?

N. Chandrasekaran: See, again, you are asking the same question in a different way. It is

very, very difficult to say.

The environment is still volatile and I have specifically mentioned

sectors where we still would like to see a lot of stability to come. There

are surprises possible and we have met with clients across

geographies, a good number of clients across geographies, of varying

sizes and it is a mixed bag.

So we have to be very, very watchful. With regard to our performance, I

think we are on a path of continuing to improve the operational

execution of a number of initiatives, which will continue to progress with

a lot of rigor.

Rishi Maheshwari: Chandra, do you notice this trend wherein during the time of crisis BFSI

was the first to hit and then following with a lag, there was

Manufacturing and Retail and others. So is it also a possibility that

BFSI is the first to recover and then with a lag, Manufacturing, Retail

and other verticals also recover?


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N. Chandrasekaran: I would also hope like you, but then there are theories like U, W, UUU,

L, about which I am not able to say anything. So at this point in time, I

think we are just going to be cautious. We are not going to say that a

particular pattern is going to emerge. It will be difficult, no one has

predicted it, so it is going to be very difficult.

Rishi Maheshwari: What would you comment on Google, IBM and Intel last week, all of

them reversing the trend towards a positive outlook for the future. In

light of that, can’t we benchmark for a better next nine months, every

quarter?

N. Chandrasekaran: We do not give guidance and our stand would be to be cautious and

you have seen what we have delivered this quarter. We have told you

that we had a good deal closures, we have told you the deal pipeline is

good.

Whether the ramp-ups will happen as per plan, will there be any

shocks etc, is still, at this point in time, unpredictable. So we have to be

still cautious in our view, and it is difficult to say anything more than

that.

Rishi Maheshwari: Sure. Thanks so much and all the best.

Moderator: Thank you, Mr. Maheshwari. The next question is from the line of Priya

Rohira from Enam Securities. Please go ahead.

Priya Rohira: Hi, good evening to the management and congratulations on very good

set of numbers. My first question relates to the comment on the fact

that discretionary spend at offshore location has seen an improvement.

Would it be possible for Chandra to highlight this more in the BFSI

space? Second, if you could share your experience in the decision-

making cycle which you are seeing currently in the large deals?

N. Chandrasekaran: I do not think I said that discretionary spend in the offshoring space has

increased. All I said was, the discretionary spend is still under

pressure, the discretionary projects are sporadic, that is exactly the

word we used ‘sporadic’ – we are seeing projects happening here and


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there. There is still not a very systematic pattern, where all customers

have started to open their tap in terms of discretionary spending.

BFSI space, as I said, the opportunities are more to do with more

offshoring, BPO, as well as a lot of integration work. Some of the

customers are spending money on integration work and we are well

placed to capture some of that and we are capturing those. I think

those are all the areas we are getting business.

Priya Rohira: And just on the decision-making cycle in the large deals, how has it

changed from the last quarter?

N. Chandrasekaran: I think we have articulated it in the last quarter, the same thing is

continuing. The difference between now and six months ago is that six

months ago, a lot of things happened and people were in a state of

shock, management teams were getting changed, customers were

thinking how to react.

But now everyone knows what the status is, they have all baselined,

they all have money to spend on whatever they have to spend and they

have cut whatever they had to cut, so the decision-making cycles are

more structured and more or less similar to the times before the crisis.

It is just that there are not too many projects on which decisions are to

be made.

Priya Rohira: Sure. And just a small question from my side: how do you see the

enterprise solutions space shaping up more towards H2? Do you think

that from the improvement in certain accounts, this would see an

uptrend from here?

N. Chandrasekaran: I think there will be opportunities in terms of upgrades and

opportunities in terms of consolidation into single instance - those are

the areas we are seeing opportunities in the enterprise solutions

[space].

Priya Rohira: Sure. Thanks very much and wish you all the best.


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Moderator: Thank you, Ms. Rohira. The next question is from the line of Anthony

Miller from TechMarketView. Please go ahead.

Anthony Miller: Hello, gentlemen, my question is on Europe, which just happens to be

in two parts. The first part is on Diligenta – if you can just bring us up to

speed as to when you hope the new consolidated Life and Pensions

platform will be complete and therefore you can start marketing it?

And secondly, a broader view on Continental Europe in particular. I

think you said you had eight new big deals, five in the US I was just

wondering whether any of the other big deals were in Europe and more

specifically with your new clients, I think you had 26 new client adds,

were any of those in Continental Europe? Are you seeing any increase

in ability to open new businesses in Continental Europe? Thanks a lot.

N. Chandrasekaran: In terms of the Diligenta platform, version one of the platform has

already gone live and is operational and a portion of the policies have

been migrated to the new platform and that platform is ready and we

are already starting to take that platform to the market.

But the second phase, which is a very critical phase, we expect it to be

fully live by the end of this fiscal year, where we will have a complete

set of functionality and rich set of functionalities and efficiencies going

live. But as I said, we are ready to take it to the market and in fact we

have started doing that.

In terms of the Continental Europe, yes, definitely one of the large

deals this quarter was in Continental Europe. We do see opportunities

in Continental Europe and it has grown even this quarter because of

the client wins we had in the earlier quarters, it is a very focused

market for us.

Anthony Miller: And so some of the new clients or some of those 26 are in continental

Europe?

N. Chandrasekaran: Some of those clients are also from Europe, yes.

Anthony Miller: Okay thanks very much.


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Moderator: Thank you Mr. Miller. The next question is from the line of Sandeep

Shah from ICICI Securities. Please go ahead.

Sandeep Shah: Yeah, congrats on the solid quarter. At this time, in terms of constant

currency, can you give us the pricing decline for this quarter?

S. Mahalingam: The pricing decline that we give is in constant currency because we

remove the exchange effect first and thereafter workout.

Sandeep Shah: So the 25 bps decline is the constant currency?

S. Mahalingam: That is right.

Sandeep Shah: Okay. And in terms of renegotiations on the pricing, you believe most

of the renegotiations are behind?

N. Chandrasekaran: That is something that will continue to happen so a good number has

been behind but we would not rule out further renegotiations. The

pricing pressure will continue we just have to carefully deal with it.

Sandeep Shah: Okay. And just last thing in term of the campus recruitment the

balance campus recruitment would be spread evenly across balance

three quarters or it maybe backended to the second half?

Ajoy Mukherjee: It will be staggered over the next three quarters that is the way we will

be doing that and yeah some of them will join definitely in Q2 but

majority will be in Q3 and Q4.

Sandeep Shah: Okay, thanks and all the best.

Moderator: Thank you Mr. Shah. The next question is from the line of Joseph

Foresi from Janney Montgomery Scott. Please go ahead.

Jeff Rosati: Hi this is Jeff Rosati for Joe Foresi. Most of my questions have been

answered, I just want to see if you can comment on the demand that

you saw in the emerging markets, specifically China and how is that

progressing?


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N. Chandrasekaran: Our presence in China is a very important one strategically but in

terms of the difference it makes in the numbers in short term, it is

pretty small. We continue to focus on this market, but I think it will be a

few more quarters before we can talk about substantial incremental

revenues from this market making a difference.

At this point in time, we delivered a very very complex project called

the CFETS which is the foreign exchange trading system with 18 to 20

different instruments, a very complex system in Shanghai, a very

prestigious project in China that went live during the quarter.

So we are building credibility, we are establishing our delivery

capability to be able to do complex projects in China. That is going

well, but in terms of material difference in numbers it is going to be

some time.

Jeff Rosati: Okay. Thank you very much and congratulations on the quarter.

N. Chandrasekaran: Thank you.

Moderator: Thank you Mr. Rosati. The next question is from the line of George

Price from Stifel Nicolaus. Please go ahead.

George Price: Thanks very much. What was the Citi revenue impact in the quarter,

do you have a revenue number from Citi?

N. Chandrasekaran: We do not give specific client numbers but basically, the Citi BPO was

there last quarter also, so last quarter to this quarter there is no

substantial increase because of the BPO addition.

George Price: But it still has an added effect year over year right?

N. Chandrasekaran: Yes.

George Price: Okay and I will follow up on that. Second question is in terms of I want

to get your thoughts I guess on investing in the current downturn. I

mean what do you see as the key areas, the key things to invest in

now to position TCS to capture growth when the macro environment

rebounds? You talked about investing in the business but SG&A was


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down a little bit at least on Dollar basis quarter-over-quarter, what

areas are you investing and how should we expect to kind of see that

flow through the numbers?

N. Chandrasekaran: I think we have talked about it and that is something that we have

done quite well. If you really look at the investments that we have

made in the emerging markets, it is not that it is just this month – the

last few quarters, last few years, we have created an excellent

footprint in emerging markets from a geography perspective whether it

is Latin America, parts of Eastern Europe, Middle East and Africa and

China. These are markets in which we have invested heavily in the

last few years.

When I say invested, we have done the ground work in terms of

setting up the local offices, setting up the local delivery capability,

recruiting local people, training them, and getting the key clients. I

think we have done all the hard work I think that is something that we

have to leverage and we will continue to invest.

In terms of domain, we are investing in Healthcare and Pharma

definitely, we are looking at the Government sector, and we are also

creating lot of frameworks and reusable components and products in

multiple domains.

We have invested in platform BPO and the platform BPO offering is

gaining a lot of traction. Today, we are still in investment mode but we

have four to five pilot customers who have signed up. We expect that

as the economy picks up, whether it is our platform in the HRO or in

the F&A or in some of the other areas that we are investing now, will

all play out very very well.

And then from the Indian market point of view we have also invested

in small and medium business. We have been doing it for the last four

quarters, those investments will pay off as we complete the pilots and

we are working with a set of pilot customers and it is going very well.

So I think there are a number of initiatives where we investing and we


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are continuing to invest which are going to keep us in good stead

when the economy returns.

George Price: Last thing if I could, US versus Europe, from a discretionary demand

perspective in particular, as granular as you can get, where do you

think Europe is, in relation to the US in the cycle and how much longer

do you think it will take European spending particularly on the

discretionary side to recover?

N. Chandrasekaran: Actually I will answer your question in part, I cannot answer it in full.

Definitely, the discretionary spend is sporadic. It has still not opened

up across the board. Definitely, US is ahead of the curve and Europe

will definitely be behind and I cannot answer how long it will take.

George Price: Alright, fair enough. Thank you.

Moderator: Thank you Mr. Price. The next question is from the line of Pankaj

Kapoor of RBS. Please go ahead.

Pankaj Kapoor: Yeah hi sir, just want to understand on the volume growth that we

reported in this quarter, was there any impact because of the increase

in the billing cycle?

N. Chandrasekaran: No absolutely none.

Pankaj Kapoor: Okay. So this was primarily led by whatever billing you have done?

N. Chandrasekaran: It is all like to like, absolutely like-to-like. There is no, let me say it

clearly, there is no one-off kind of effect of any kind, not only on the

revenue lines but also on any other margin lines.

Pankaj Kapoor: Sure sir, thank you.

Moderator: Thank you Mr. Kapoor. The next question is from the line of David

Naughton from Nevsky Capital. Please go ahead.

David Naughton: Hi there, just had a question about the tax rate. Tax was a little bit low

than expected for this quarter. I was wondering, is that representative


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of the remainder of the year? Is there anything particular about this

quarter that drove out lower tax rate? Thanks.

S. Mahalingam: No, tax rate actually has gone up in this quarter, but the last quarter

we had an additional tax debit coming from one of the overseas

jurisdictions and that is why you know our tax rate last quarter was

14.68% and whereas actually it was 12.40% if I remove that

extraordinary item. So from 12.40%, it has moved to 14.68% this

quarter.

David Naughton: And is 14.68% representative of the fiscal 2010 year or not?

S. Mahalingam: Earlier we had said that it is going to be much more than that, but

given the limited number of STPI that have gone out, we think that it is

probably going to be somewhere around the 17% mark, not much

more than that.

David Naughton: Okay thank you.

Moderator: Thank you Mr. Naughton. The next question is from the line of Yogesh

Agarwal from HSBC Securities. Please go ahead.

Yogesh Agarwal: Yeah hi, I just have a couple of questions, if I may. Firstly, I reckon the

next year probably will be a big upgrade cycle for the PC market after

2004-05. Will that really impact your hi-tech clients and as well as

overall spending on IT? And secondly, in the telecom market also, I

understand the next big upgrade cycle will probably be after 2012

whether it is 4G in US or the next generation access in Europe. So in

the mean time for the next couple of years, do you think the spending

by the telecom market will remain muted?

N. Chandrasekaran: I think on the hi-tech one, we need to wait and see. Overall, the

economy should show some recovery first for the hi-tech industry to

pick up. Until then, the hi-tech industry is going to be fluctuating a little

bit is my assessment at this point, but we cannot say with any

certainty.


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With regard to the telco segment I think you know there are

opportunities in the telco segment more in the System Integration and

Outsourcing kind of opportunities in the developing markets. In the

near term, it maybe fair to say that the opportunities in the established

market telcos can be muted.

Yogesh Agarwal: Just another one, at the risk of sounding naïve, how different is the

continental European market compared to the Japanese market,

because I believe the culture and the language issues are almost the

same. How would the traction in continental Europe be much better

than in Japan? Thanks.

N. Chandrasekaran: Continental Europe is much more ahead in the maturity curve on

offshoring than Japan, much more ahead. And we have a lot of proof

points. We have many clients, a good number of clients doing work in

India, doing work with us. There are multiple scales of clients, different

service offerings and so they are not comparable. Definitely,

continental Europe is much ahead. It is just that the some of the labor

laws and restructuring make it a little difficult for clients to pursue

offshoring with more vigor in continental Europe.

Yogesh Agarwal: Perfect. Thank you, gentlemen.

Moderator: Thank you Mr. Agarwal. The next question is from the line of Ashwin

Mehta of Motilal Oswal Securities Limited. Please go ahead.

Ashwin Mehta: Congratulations on a good set of numbers. I had one question on our

domestic business which seems to have grown pretty well this quarter,

contributing almost 35% of our incremental growth. In what verticals

would our growth have come from?

N. Chandrasekaran: See the domestic business growth comes from Government as well as

Banking.

Ashwin Mehta: Okay. And another thing in terms of margins, we have seen almost a

Rs 160 Crore decline over the last two quarters in our employee costs.

Do we see further possibilities of either cost rationalization there or

actually employee rationalizations there?


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N. Chandrasekaran: Neither. The primary reduction you see in that expense is due to a

significant push in the offshoring drive. Considering that we have

achieved in the last three quarter a significant movement, to expect

that [same] level of movement is unrealistic. So you have to give us

some relief there.

Ashwin Mehta: Just one more thing: in terms of our involuntary attrition what was the

number this quarter?

N. Chandrasekaran: Involuntary attrition is something that goes on throughout the year

based on the performance and it is not something that happens on a

quarterly basis. As we said last time, it is close to about 1000 to 1100

in a year so that is a very insignificant number.

S. Ramadorai: …on a base of 143000…..

Vihang Naik: Okay. This is Vihang I just had another question, I heard you mention

that your top client has changed in the current quarter, did I get it

right?

N. Chandrasekaran: Yes, you got it right.

Vihang Naik: Could you, just for the sake of comparison, give us the contribution

from this particular client in 4Q?

N. Chandrasekaran: It is very marginal. I think I would say that 4Q to now will be, a few

single digit basis point difference. This quarter will be higher.

Vihang Naik: So you are saying that there would not be much of a difference in 4Q

and 1Q.

N. Chandrasekaran: Absolutely, it is a growth, but it is growth in terms of a few basis

points.

Vihang Naik: Okay, thanks.

N. Chandrasekaran: Few basis points increase this quarter.

Vihang Naik: Okay thanks.


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Moderator: Thank you. The next question is from the line of Tarun Sisodia from

Anand Rathi Financial Services. Please go ahead.

Tarun Sisodia: Yeah, my first question is regarding the actual performance versus

internal estimation. How would you rate this performance versus your

expectation?

S. Ramadorai: I have already said that we could not have been happier.

Tarun Sisodia: And secondly related to the clients, you have a lot of clients who were

affected by a lot of this economic downturn conditions both in

Transportation as well as in BFSI segment. Are you seeing some

better traction in those set of clients to which you had exposure?

N. Chandrasekaran: Yeah in the BFSI sector, some of the clients are showing better

recovery - some sort of a stability, still not recovery. In terms of

Manufacturing and other sectors, yet there were concerns we still

cannot say with any degree of certainty.

Tarun Sisodia: And with regards to the new client involvement and within the existing

clients when you are going for new projects, what kind of reactions are

there? Are they more inclined now, compared to say four months

back, receptive or whichever way you want to look at it?

N. Chandrasekaran: Especially if there is an opportunity, yes, they are more receptive.

Tarun Sisodia: So you would think, in the last four months things have turned a little

bit more positive?

N. Chandrasekaran: [Laughs] Maybe in specific situations. Overall, we cannot give a very

comforting, confident answer on that question.

S. Ramadorai: Some times its positive and other times it is negative, it varies.

Tarun Sisodia: Thank you very much.

Moderator: Thank you Mr. Sisodia. The next question is from the line of Dipen

Shah from Kotak Securities. Please go ahead.


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Dipen Shah: Yeah, congrats to the team on a very good set of numbers. Most of

the questions have been answered. Just one thing on a book keeping

question, can we have some breakup in terms of utilization of onsite

and offshore employees?

Ajoy Mukherjee: The overall utilization excluding trainees is 79.2% and the utilization

including trainees is at 71.3%. So these are the two utilization

numbers that we have been giving all along and these are the

numbers as of this quarter.

Dipen Shah: Okay, fair enough, thank you very much and all the best.

Moderator: Thank you Mr. Shah. The next question is from the line of Pinku

Pappan from Nomura. Please go ahead.

Pinku Pappan: Yeah, thanks for taking my question. Just two follow-up questions: on

the India business, do you expect the growth to continue strongly in

the next three quarters?

N. Chandrasekaran: See our India business, we have always said will be volatile, because

we do not have annuity contracts of any substantial size in India

market or APAC market or emerging markets. We still have a

significant amount of project work, so the India business in general will

be volatile and we should be prepared for that.

Pinku Pappan: Okay. Could you tell me the constant currency growth in US, quarter-

on-quarter?

S. Mahalingam: Constant currency growth, no we are not releasing that number, so I

cannot give you right now.

Pinku Pappan: Alright. And just a last question on compensation – have you changed

anything, I mean for the rest of the year about promotions and pay

hikes, could you just elaborate?

Ajoy Mukherjee: See as far as compensation is concerned now, there will be no

increments, and we are sticking to that, as far as this year is

concerned. Promotions are something we will be going ahead with.


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That is what we have announced for this year, we will be going ahead

with the promotions.

Pinku Pappan: Okay.

Ajoy Mukherjee: And the variable pay that we are paying in full for this particular

quarter. These are the announcements that we made today.

Pinku Pappan: Alright.

S. Mahalingam: And just to answer your previous question, it was a 1.5% increase in

constant currency.

Pinku Pappan: 1.5%, right okay. One final question, so were you saying earlier that

you have reached a limit on the offshore revenue mix at 50.4%?

N. Chandrasekaran: I was not saying any limit or anything, all I was saying is that: do not

factor in such a pace, because the pace with which we have increased

the offshore movement over the last three quarters has been pretty

high. So that is a pace that we cannot sustain.

As a principle that is a core to our business model, we will continue to

focus on offshore movement, continue to leverage our global delivery

capability to ensure that the clients get the best value and we execute

extremely well.

But you should not anticipate that because we moved 270 basis

points, it is going to be repeated. I was just setting the expectation for

you.

Pinku Pappan: And lastly one housekeeping question, equipment and software

licenses, is it a one-off thing this quarter.

N. Chandrasekaran: Again, it is also connected with some of the System Integration

projects and the India business that we do. That will be volatile. Yes it

has gone up slightly this quarter.

Pinku Pappan: Alright, yeah thanks a lot and congrats for a great quarter.


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Moderator: Thank you Mr. Pappan. The next question is from the line of Diviya

Nagarajan from JM Financial. Please go ahead.

Diviya Nagarajan: Maha, I heard you talk about tax rates. Am I correct in saying that 17%

is the tax rate you are looking at for the rest of the year?

S. Mahalingam: Yes, that is the rate we looking at for this year.

Diviya Nagarajan: And why would this increase in tax rate come about in specific?

S. Mahalingam: You know it is really in terms of expansion in some of these STPI units

which have come out, nothing else.

Diviya Nagarajan: And what is your outlook for FY2011?

S. Mahalingam: FY2011 does not change.

Diviya Nagarajan: You are looking at 20%.

S. Mahalingam: No, as I said it will be about 17%.

Diviya Nagarajan: And Ajoy, just one question: you mentioned that fresher addition

would probably come in bunched up in the second half, so could you

give us a sense of what kind of gross additions you are looking at in

Q2 from the fresher aspect?

Ajoy Mukherjee: As far as Q2 is concerned, what I said was some of the freshers that

we had offered they would be joining in this particular quarter. The

lateral hiring that we would be doing would be very much controlled

and would be customer specific as far as the this quarter is

concerned. The remaining freshers would join in Q3 and Q4 staggered

over those two quarters.

Diviya Nagarajan: Right. Any numbers if you give us on the fresher additions plan next

quarter?

Ajoy Mukherjee: In this particular quarter?

Diviya Nagarajan: Yeah.


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Ajoy Mukherjee: At this stage, I would say somewhere around 800 to 1000 is the

number that we are looking at as far as Q2 is concerned.

Diviya Nagarajan: Right. And lastly, on the variable salary, when you said this quarter we

are paying out the full variable, it means for 2Q right? Not for 1Q?

Ajoy Mukherjee: No, it is for 1Q performance. As you know we give the variable in two

components, one is monthly and the other one is based on overall

complete performance that is the quarterly component. So what I

mean is the quarterly component is being paid out.

N. Chandrasekaran: So the 1Q numbers that you see, it already includes the variable pay

that we have paid to the employees.

Diviya Nagarajan: Alright, thank you so much.

Moderator: Thank you Ms. Nagarajan. The next question is from the line of

Sandeep Shah from ICICI Securities. Please go ahead.

Sandeep Shah: Yeah sir in terms of some of the troubled verticals which you have

mentioned, these three verticals like Telecom, Manufacturing, and the

Hi-tech over the last three quarters has been declining sequentially.

So what you are indicating is whether the bottom has been reached or

no, the bottom may not be reached and there is a possibility of further

decline?

N. Chandrasekaran: Yes. You are interpreting me correctly.

Sandeep Shah: So in the sense the bottom has reached?

N. Chandrasekaran: No, I cannot say whether bottom has reached or not.

Sandeep Shah: There could be an expectation of a further negative surprise going

forward?

N. Chandrasekaran: Yeah, at this point we are uncertain, we cannot say, we are watching it

carefully.

Sandeep Shah: Okay.


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S. Ramodorai: I made it is my opening remarks saying that the environment has to be

watched closely and there can be surprises.

Sandeep Shah: Okay, thanks.

Moderator: Thank you Mr. Shah. The next question is from the line of Anurag

Purohit of Religare. Please go ahead.

Anurag Purohit: Good evening gentleman, and congratulation on good numbers. If you

look at the number of active clients, it has declined quarter-on-quarter

in this quarter despite 26 new clients adding into the company. And

also the revenue growth from your rest of the top 10 clients has been

muted in the quarter if you combine these two, could you elaborate

more on that?

N. Chandrasekaran: There is nothing much to read into the decline in the number of active

clients, primarily because some of the clients we have are clients for

single projects. When those projects are over, then they cease to be

clients because there won’t be any revenues from them.

What typically happens is that when companies spend discretionary

funding in terms of projects, even if some clients go, some new clients

come. So, one-off project clients there can be a decline. So it is a

phase and I do not think that there’s anything to be read in that. We

have not lost any of our annuity clients, we have not lost any of the

clients who give us a considerable business, so nothing to read there.

In terms of the top clients, I think the metric is pretty good. Top one

client, the group of top five, the group of top ten, all have grown, it is a

very good indication in this market, because that is where you see

surprises and that is where we can sense stability. So we see stability

in most of those clients, and that is good news, actually.

Anurag Purohit: Okay. And also would it be fair enough to assume that the utilization

including trainees would further go down in coming quarters as

trainees come into the system?


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N. Chandrasekaran: It depends on the volume growth, but we will factor in a slight decline,

yes.

Anurag Purohit: Right. Thank you and all the best.

Moderator: Thank you Mr. Purohit. Ladies and gentleman, we will be taking one

last question from the line of Shraddha Agarwal from B&K Securities.

Please go ahead.

Shraddha Agarwal: Hello sir, good evening. In the previous two to three months the TCS

management has sounded confident of maintaining organic revenue

for FY2010, so does that confidence still hold or do you see some

positive or negative surprises coming over in the remaining quarters of

the year?

N. Chandrasekaran: We do not give guidance first of all, but we have been saying that we

are looking to see a flat year organically and that is what we are

looking at, at this point in time. But nothing more qualifying comments

can be added.

Shraddha Agarwal: Sure sir. That was helpful, sir thank you.

Modertor: Thank you Ms. Agarwal. I would now like to hand the floor back to Mr.

Shirali for closing comments. Please go ahead sir.

Kedar Shirali: Thanks Melissa, I request Mr. Ramadorai to make some closing

remarks for the night.

S. Ramadorai: Thank you every one, for participating in this call. Like I said in the

beginning, it has been an exceptionally good quarter in terms of

performance across all parameters. And it has come out of operation

excellence and efficiencies that have been brought out, focus on the

customers and the caution which I expressed with regard to [being]

watchful of the situation and the fact that one would not rule out some

surprises.


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But overall, I think the investments we have made for the future and

the kind of the domain competencies we are building should play out

well in the long run. Thank you.

Moderator: Thank you gentleman of the management. Ladies and gentlemen

thank you for choosing the Chorus Call Conferencing Facility. Thank

you for your participation and you may now disconnect your lines.

Thank you.

Note: This transcript has been edited to improve readability

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