NDTV: 2010 is the vision of $10 billion of revenue for TCS and you are not even half way through. What is your view on that?
S Mahalingam: This is a challenge and it is what makes us go in TCS. When I joined TCS we were 25 people in consulting and now we have over one lakh employees. If you look at the growth path of TCS then in 1993 when we said that every alternate year we would double then it was easier said than done. But over a period of time we have more of less done that. Looking at a comparative analysis of nine months period ending December 2007 to a year earlier, we registered 40 per cent growth in dollar terms. Last year we added close to $1.3 billion in revenue in one year so I think our business momentum is quite strong. I also think you need to have tough goals because without it what’s the fun in this business.
NDTV: There has been a lot of talk in the industry that Indian IT companies are generically conservative but now they need to go in for big acquisitions. How do you see this issue?
S Mahalingam: When you are aspiring to be a global company then I don’t think conservatism will limit us. In view of this it is first important to understand that can we grow the business organically. Secondly in case of integration we need to make sure that the return on investment is impressive apart from future margins. So you evaluate all that and then come to a decision and in doing so you have to be focused on your revenue goal.
NDTV: We all have to live with corrected margins in the long run whether it is TCS or a foreign company, as the margins will uniform while going forward as you become more global in nature. What do you say?
S Mahalingam: I don’t buy that argument, as it is easier to say that margins will continue to decline and then I won’t have any control over it. We argue that as application development maintenance becomes the main stream and as global players come in and take advantage of offshore work, therefore, there will be an impact on prices. This is a logical argument but if you look at value addition then you start evaluating the quality of your revenue.
NDTV: There has always been the talk of TCS listing overseas. Is that still on the cards?
S Mahalingam: TCS has said that it is not averse to listing overseas but essentially it would mean that there is going to be either a primary issue or secondary sales. I don’t think anything like this is on the cards at the moment.
NDTV: Let’s come to the client side as there is a lot of buzz in media on top clients handling prestigious projects. Is that going to impact the balance sheets in a negative way?
S Mahalingam: Obviously, if the volume of work reduces from a major customer then it is going to have an impact on the revenue. But at the same time if you know the customers very well, then you start working with the customer to see how we can get them out of that problem. As you know IT is a major productivity weapon for everyone and if you can extend the amount of work for a given dollar then it is a major advantage for us. We offer great scale and good value and taking into account these two factors then there could be an opportunity.
NDTV: The Economic Value Added (EVA) based compensation is not meeting your internal targets? Can you throw more light on that?
S Mahalingam: Right from the beginning we have said that we would look at variable pay at the end of each quarter and then see what has to be distributed. At the present moment there are many external factors like rupee appreciation that have come in.
NDTV: Is there a scope in increasing the variable pay component in the salary as everything is so volatile so be the salaries?
S Mahalingam: The way that you construct a compensation scheme is no longer the pay given to people at lower level. When you construct a compensation scheme in a competitive economic environment then you take guaranteed pay, which has to be given to people because there is certain standard of living they have to maintain. But there is also pay at risk, which is going to vary because of volatile conditions.
NDTV: Which currency worries you more dollar or yuan?
S Mahalingam: Actually rupee worries me more because that is what appreciates against all currencies. For the current year I am not sure what kind of economic scenario will be. As far as yuan is concerned our exposure for yuan is not that high and conventional wisdom is that it is going to appreciate much more.
NDTV: The reason of asking this question is that because a lot of competition is coming from China? Does that worries you or it is secondary right now?
S Mahalingam: At this point of time China’s software service organizations are not many and a lot of growth is coming through global players. Still there are inherent advantages that India has.
NDTV: Is there a merit for the regulators to intervene more actively given the sudden rise of rupee?
S Mahalingam: There are economic reasons as you do not import inflation but equally there are export dependent industries and other related issues. Seeing the kind of economic activities happening in India I think that we need extensive intervention to check rupee rise. I believe more rupee appreciation will not take place because we have reached the stage where it is possible to keep rupee at current levels.
NDTV: Where do you see rupee in 3-6 months period from now?
S Mahalingam: We are learning to work in a volatile environment but having said that we felt that sometime during this year we should plan on rupee valued at 38 against US dollar.
NDTV: How do you really prepare for such scenario that brings down your revenue per employee so heavily?
S Mahalingam: When you look at this kind of currency appreciation then you start looking at the natural hedges. If you match your revenue and expenses in the same currency then it’s a natural hedge. Obviously if you do that then there are cost differences then you don’t take advantage of that. So you have to keep looking at the extent of natural hedge that you have and see whether it has to be changed. This could also mean that we could beef up our presence in China, which demands a lot of things within organizations. In addition to this you have to manage the cost very well and improve portfolio of services.
NDTV: How much of your billing comes from dollar right now?
S Mahalingam: At present it is around 55 per cent but our work in the US is 50 per cent. This is fairly less than other industry players because our concentration in north American geography has come down.
NDTV: Where do you see wage inflation in next one year?
S Mahalingam: Wage inflation is based on external conditions because people compare their salaries with outside. Given that all IT companies are facing pressure, the external environment is going to be tight. We certainly expect moderation and we think it is going to be in between 8-10 per cent.
NDTV: Are glory days of Indian IT companies are over?
S Mahalingam: It is very strange to be asked that question when you grow at 40 per cent growth rate in dollar rate. I think the percentage of growth is certainly an issue mainly because when you have to grow at over $1 billion in one year then percentage of growth might vary.