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A Quiet Revolution

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These are challenging times for the Indian information technology (IT) industry. However, the National Association for Software and Service Companies (Nasscom), the apex body for the Indian IT industry, recently announced that the IT and IT-enabled services industries will exceed the $100-billion mark this fiscal. Of that, $69 billion will come from exports. Also, Indian IT export revenues will grow by 12-14 per cent this fiscal.

Many visionaries and companies have played a major role in this achievement. A large part of the credit goes to Mumbai-based Tata Consultancy Services (TCS), India's largest IT services exporter and the oldest IT services company. In 2010-2011, it had revenues of Rs 37,325 crore and a net profit of Rs 8,716 crore. Just a little over 10 per cent of its revenues came from the domestic market and the rest was earned through exporting software and consultancy services. Today, TCS has offices in more than 40 countries across the globe.

For long, it was the Bangalore-headquartered Infosys and Wipro that grabbed the attention of the market, investors, analysts and the media. There were quite a few reasons for this. TCS got listed only in 2004, unlike Infosys and Wipro, which had tangoed with the bourses much earlier. And unlike the other two that eventually opted for international listing, TCS hasn't followed that path, impacting its visibility to an extent. Also, true to the Tata tradition, the company deliberately kept a low profile. While other large Indian IT companies had compelling narratives, TCS was long seen as a sedate company run by competent but lowkey professionals.

Over the past few years, several of those aspects have changed. From the cerebral but aloof S. Ramadorai, the TCS leadership has undergone a generational shift with avid marathoner N. Chandrasekaran taking over as its CEO. Today, TCS has emerged as the clear leader among Indian IT companies in terms of revenue. From being a mere service provider, it has increasingly positioned itself as a global consulting strategic partner, which is able to deliver end-to-end services.

It has almost managed to catch up with its Indian rivals in margins even as it retains a 25-30 per cent edge in revenue. TCS gets about 44 per cent of its revenue from the banking, financial services and insurance (BFSI) vertical, which is globally among the largest spenders on IT. Even while managing to keep the contribution of BFSI around that number on a large, growing base, over the years, it has expanded into several more horizontal services and industries such as retail, consumer goods, manufacturing, telecom, utilities and life sciences. Commenting on TCS's last quarterly numbers, Chandrasekaran had pointed out that the growth of the company was broad-based across sectors and geographies.

In a note released last month, HSBC Research pointed out that TCS has the highest BFSI exposure among top Indian IT firms. TCS alone catered to a quarter of the IT requirements of the top five global banks. The report says: "the company continues to offer decent growth on the back of its consistent ability to expand its addressable market among banking clients, as evidenced by its diversification into core banking business process outsourcing (BPO) and pension processing. Additionally, we see the growth of off shoring business opportunities in other markets partly offsetting the moderating prospects of the BFSI sector".

TCS also has a wider geographic footprint, compared to some of its other Indian IT peers. It gets about 56.4 per cent of its revenues from the Americas and around 26 per cent from Europe. A Bank of America-Merrill Lynch report says TCS is a key beneficiary of increased global sourcing. "It stands out for all-round growth across verticals, geographies and service lines. It is also increasingly a winner in larger and more transformational deals. It leads the industry in its low attrition and ability to operate at high utilisation levels. We expect pricing, productivity and revenue mix focus to largely offset wage pressures."

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Again, unlike some of its rivals, TCS has not been hesitant to make acquisitions. For example, in 2008 it acquired BPO player Citi Global Services for $505 million. It has also been able to successfully integrate the acquisitions. Where it makes sense and the price is right, it has made buy decisions which have served them well, even as they organically grow existing businesses.

Chandrasekaran recently indicated that the company was looking to make acquisitions in the German and Japanese markets to get a stronger foothold there, as well as in the healthcare space. Sudin Apte, CEO and research director of Offshore Insights, an IT research and advisory company, says that TCS has successfully been able to execute its strategy in the recent past. "They are automatically invited to the high table for all major deals. Today, they compete and win with the likes of an IBM, Accenture and Capgemini, not necessarily only against their Indian counterparts."











GOING PLACES
TCS exports to and has offices in more than 40 countries


However, the company with 226,000 employees is trying hard to delink revenue growth from headcount growth. Ajoy Mukherjee, TCS's human resources head, has repeatedly asserted that non-linear revenue growth would become visible by the end of the current financial year. With Europe — from where it gets a quarter of its revenues — still facing challenging times, the company will have to find newer avenues of growth if it has to sustain and expand on the lead it has built over other Indian IT players and catch up with the global biggies.

A senior vice-president of a large Indian IT company who did not want to be identified as he is not authorised to speak on competitors, says: "They have done an amazing job of execution and are extremely competitive in the marketplace. However, it remains to be seen whether TCS can move up the value chain and take on the likes of IBM and Accenture in large consulting- led transformation deals. But that is a challenge every large Indian IT company will face."

Chandrasekaran would be hoping to continue to build on the current strengths to take TCS to the next level.

bweditor(at)abp(dot)in

(This story was published in Businessworld Issue Dated 19-03-2012)