V Ramakrishnan, Chief Financial Officer (CFO) and Milind Lakkad, Chief Human Resources Officer (CHRO) at Tata Consultancy Services (TCS) talk about Q2FY21 numbers, recovery, hiring, strict rules for H-1B Visa Attrition rate, deal wins and buyback of Rs 16,000 crore among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

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An exceptional loss provision of Rs 1,218 crore has been shown related to the legal claim. Please provide some detail on it? When we talk about the constant currency revenue then we have seen a 4.8% growth while the street expectations were of 2.6%, which is a big achievement. So, what led to this and do you think that the run rate will exceed in the coming quarters?
V Ramakrishnan: Firstly, this legal claim goes back to litigation that started in 2016 and this is an allegation that there are some trade secrets which we had improperly accessed. It has been going through the courts and we have received quite a bit of relief at the early stages but from the appeals court, we have not got all the relief that we had expected. So, it is still in the courts and is still going through the process. But based on the accounting requirement the provision has been made. We will be still hopeful and confident that based on our argument, we will get justice eventually. So, this is a provision that has to be done based on the accounting guidelines. On the growth, it has been broad-based and across the sectors, both BFSI especially the growth in the retail as well as in the mortgages etc the growth has come back. As well as in the retail sector especially in the discretionary retail spending we have seen a muted but the essential retail has been significantly doing well and they have been using technology especially in terms of contactless and how to manage their supply chain. So that has come back. Travel sector and hospitality sector is still very much affected but it is more into pharma retail and essential retail etc. So, these two sectors are significant sectors for us close to almost 40-45% of our business, where there has been momentum and that has reflected in the overall numbers also better than what the market observers have taken. 

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Operating margin is at the eight-quarter high. What made it happen and how sustainable it is? 
V Ramakrishnan: Margin will increase due to the growth and we have said this earlier as well because our revenue contracted in the last quarter it due to the demand. So, when the demand is back and revenue goes up and the cost remains the same then margin benefits can be seen. Apart from this, we have a disciplined look at the cost of every item of cost; certain areas like travel among others are not working so it will also have some benefit. In this quarter currency did not have a major impact, i.e. it had neither benefitted nor harmed and it should be looked upon. Going forward, we expect that it will be sustained because our demand environment is good and the pipeline is also good. Broad-based growth will only support our margin. So we expect that it will be sustained and I am quite confident about that. 

Amid this challenging environment, I think TCS is an exceptional company that has announced salary hikes effective from October 1, 2020. You have also hired 16,000 new people in Q2FY21. So, can we say that the situation is normal for you, which is not possible for a lot of companies and we have seen the job and salary cuts? Do you think that things have improved?
Milind Lakkad: It is so that the kind of business we saw in the last quarter and since a long time, we were thinking about how to plan this and that planning also helped us a lot. Trainee hiring, virtual onboarding of training, lateral hiring based on the demand we're going on and have gone well and we didn’t face any supply constraints in the last quarter. In the next quarter too, we are going to bring 12,000 trainees and bring them on-board. Lateral also, we are hiring continuously and depending on the business demand. As we provide revenue guidance, I am not going to tell you what exactly will happen in the next two-three quarters but the signs seem to be a good one. 

Attrition rate is at an all-time low of 8.9%. What were the reasons and do you think this level is sustainable going forward? 
Milind Lakkad: I think that our attrition rate is the best in the industry and this is not a surprise. Right now, I will accept that some of it have improved due to the current COVID situation. I think, people are getting a good opportunity and work and I expect the retention level will be similar, maybe a few points here and there may happen. Our job is to provide good opportunities to people and people look forward to a long-term career and that is why they are staying and that will happen and will continue, whether it is 8.9% today it will go few points higher tomorrow, it might happen but in general, the numbers will be in the same ballpark 

We have seen deal wins of $8.6 billion as compared to $6.9 billion in the previous quarter. Have the deals been pushed from Q1 to Q2 or they are fresh deal wins? Please provide some details related to the deals?
V Ramakrishnan:  One should be taken care of in this $8.6 billion and that is that it includes $2.5 billion about which we talked about some three-four quarters ago but the contract has just been signed. So, we have included it in this quarter. It is a Phoenix customer in the UK that has an insurance business and it has been a very valued customer for us since a long time and it has one bigger programme about which things has been discussed in the past as well. This has will be $6.1 billion and it will have both renewals and new customers across the various markets as well as the sectors. So, we are happy with where we are and it is continuing from the last full year when we booked new orders worth $27 billion and in the first quarter, we booked orders of $6.9 billion. So, it is a continuity of the same. 

TCS has announced a buyback of Rs 16,000 crore. What is the rationale for arriving at that number?
V Ramakrishnan: One thing should be kept in the mind that the last two buybacks were also of Rs 16,000 crore. This time, it has to be taken care of that this buyback will be taxed as a buyback tax has been introduced and it can range between Rs 3,000-4,000 crore. So, this time the number was decided by keeping this aspect in the mind. This is a part of our capital return policy. So, the returns which we have, I mean, the free cash flow that we generate, we return it to the shareholders. Buyback is one of the options and we have also announced an interim dividend of Rs 12 per share, which will also be paid in the next few days. 

The US has made rules stricter for H-1B Visa. How do you see this move in terms of your subcontracting cost and what would be the impact on the company?
Milind Lakkad: It came on the day before yesterday night and our team is studying all these documents, they are big documents, so I will not be able to comment on it in detail. But can just say that little impact will be felt; it is not that it will not happen. But we have two labours and they are location independent agile and SPW. And the way the mindset of the customers and the organization has changed to be able to work from anywhere. These are a few things due to which the impact will be relatively low. 

BFSI and retail growth were exceptionally good with the growth of 6.2% and 8.8% QoQ respectively. Does this growth rate imply that a full-fledged recovery is back on track, especially for the retail vertical? 
V Ramakrishnan: I have said about the retail that different segments are present in the retail. The business has been very good in the essential retail segment, especially in this pandemic they have been adopting measures to see how they can do many things on a hybrid model, both online as well as to make sure that even when they are delivering to premises then how it is done on a contactless manner and also in terms of how to make their supply chain respond to the situation. So, there has been good growth in the essential retail business and essential CPG. But the business of discretionary retail-like fashion industry and luxury goods industry has not started a lot yet. 

After that the travel sector, like airlines business, although it is running its complete capacity is not being utilized; hotels, which has not opened at many places; luxury travel that includes tourism etc has not started, yet. So, when we have a look at the retail then have a look based on different segments. When other segments will be open then definitely its business will also return but can’t say that when will it be back. 

If I talk about geographies than Europe has shown 6.1% growth, while the UK and North America has also grown by more than 3% and India has seen a 20% growth. Do you expect that these levels of growth will be sustained in the future and India will act as an important set-up? 
V Ramakrishnan: One should be kept in mind that in the last quarter our business came down by around 26% in India, so this 20% growth is related to the return of the business that went down. We do many things in India including works of several departments of the government as well as to the public sector and private sector, where we provide services to big companies. Other things we do is examination and evaluation business and that is a big thing where we participate in all the major evaluations, which happens. So, some of those businesses which were affected in the last quarter and we are seeing some of them coming back, so one has to look at it from that angle. Technology is also a huge differentiator for both private enterprises in India as well as the government. Government is rolling out several programmes, which are all built on harnessing the power of the technology whether it is in terms of social objectives or financial inclusion. Various sectors are doing healthcare and the technology is at the forefront. So obviously we participate in some of these programmes and that has also been helping.