Hell-bent on growth with margins: TCS

BENGALURU: TCS CEO

Rajesh Gopinathan

, in a letter to employees, said the company should be proud of the strong momentum it has generated and its return to a double-digit growth trajectory.


"We have succeeded in winning large deals, expanded into multi-stakeholder business areas and our digital is now 30% of our total revenue," he wrote after TCS announced a 12.1%

revenue growth

in the third quarter on a constant currency basis.

TCS had gone through a lean phase between 2015 and mid-2017. But recent quarters have seen a strong comeback. It's both the revenue growth and margin leader in the

IT services

business today.

Gopinathan said the growth has been fuelled with wide-scale digital skilling initiatives, rapid progress in agile transformation and adoption of location-independent agile methodology. "It's gratifying to see our contextual masters and digital champions have increased to more than 1,000 across TCS," Gopinathan said.

The operating margin did take a knock in the last quarter, by 90 basis points to 25.6%, due to currency volatility and new hiring especially in the US. But the company appears absolutely clear it will remain in the stated band of 26-28%, and would not sacrifice margins for growth.

In an interaction with TOI, COO N Ganapathy Subramaniam said, "We come from a school where you can't compromise margins for growth. If you do that, you end up having neither. So, we are hell-bent on growth with margins."

Subramaniam said the company does not take up projects that it cannot execute. "We take up projects that make sense and we are disciplined about structuring the projects both technically as well as commercially. We will not go after some wild chase."

Asked about headroom for margin growth in large deals, Subramaniam said raising the margin profile requires certain capabilities, solution accelerators, products and execution governance. “When we take up a large project, we put in enough skin in the game so that there is continuous innovation and improvements,” he said. Large deals, he said, have a longer sales cycle and they go through the rigour of making clients satisfied and comfortable. “It’s important that we calibrate it,” he said.

TCS is seeing most of the discretionary spends happening in digital. Subramaniam said they have launched a series of digital offerings – blockchain, IoT, cloudification, API-fication, micro services. All these are important for customers to do large-scale digital projects. The first wave of digital projects were simple projects like mobile app and connecting to the back end. Organisations are now moving beyond that to adopt agile and changing the core systems to open architecture. “The digital core in the back has become a lot more important,” Subramaniam said.

100% variable pay for most employees
TCS has given 100% variable payout for a majority of the organisation for the second consecutive quarter. Infosys paid 90% variable payout for most of its staff. TCS’s EVP and head of global HR Ajoy Mukherjee said individual payouts for senior grades (associate consultants and above) may vary depending on business unit performance. TCS has 4.17 lakh employees as of December end.

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