TCS has brought 30,000 people into the system & numbers will remain the same next year also: Milind Lakkad

Softening of BFSI and retail in this quarter is the primary reason for not performing in accordance to expectations, says Milind Lakkad, Executive Vice President and Global Head – Human Resources, Tata Consultancy Services (TCS). During a candid chat with Swati Khandelwal, Zee Business, Mr Lakkad said, "We have a practice of giving back 80-100% free cash slows to the shareholders but the path - dividend or share buyback - is decided by the board. Edited Excerpts:

TCS numbers of the quarter haven't met the street numbers. What led to these disappointing numbers and what is your outlook for remaining part of FY20?
Softening of BFSI and retail in this quarter is the primary reason for being below the expectations, but, rest of the verticals have performed well like in life science we grew by 16%, communication and media entertainment has been good. Larger verticals have done well. BFSI is the largest vertical which has gone slow.

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What is your view on the constant revenue growth that has fallen to a single digit, do you think that it will improve soon?
Normally, the first and second quarters remains healthy for us while the third and fourth quarters are those in which we go back. So, this time, we will have to perform brilliantly in these two quarters to make a double-digit growth this year.

Tell us about the pockets where opportunities are available at present?
If you have a look at our pipeline and the order book then we have an order book of $6.4 billion, which is a big one in the last six quarters. These are good signs for us and we are getting across all industries. In the case of BFSI, we have an order book of $2.2 billion for this quarter. So, it is going to be a broad-based positive sentiment, which we carry and it is based on the pipeline and overall order book, so far. 

Thus, quarter 3 is going to be better quarter 2?
We don't make statements related to the future but situations are changing and we are hoping to do well on this. We had a good talent pipeline of 30,000 more people who have been added into our system. They have been trained and made them ready to go on the work. Thus, supply-side has been created and we are satisfied with the pipeline and the order book that is lying with us.

What is going to be the overall growth guidance for FY20 and is it likely to be more than 10%?
Similarly, we don't provide any guidance as well but can reach the mark if we perform well in the next two quarters (Q3 & Q4). The point is that we want to get there and will drive the organisation to get there.

Your margins are at 24% (a 9 quarter low). Is that a matter of concern for you?
There are two reasons related to it and they are (i) we didn't grow in accordance to the projected numbers and (ii) front-loading of people in which almost 30,000 people have been added in the system, which is highest till date. Hiring these many people was a part of the strategic decision under which we had plans to hire trainees, train them and make them ready. It will also have an impact on this quarter's margin. 

Any hope of improvement.
See, almost 30,000 people are sitting, who will be observed in the system shortly. They have to work and we have a good pipeline and order book. Thus, these all are good signs of getting observed in the system. 

Your digital revenue growth has gone down from 42.1% in Q1FY20 to 27.9%. How do you reason this out? 
I will not put it as a trend but it is just a kind of nature of business. These are a different kind of engagements including fixed-price agreements. Thus, I will not read too much into 42 to 27. I don't think it is a trend or anything else of that short as for the purpose we will need a couple of data points to term it as a trend and that's why I am not worried about it.  

Lifescience and healthcare vertical has been performing exceedingly good QoQ. Do you see the same level of growth for Q3 and Q4 and what are your expectations from this vertical?
I don't want to provide any specific data but they are on a good track right now and I don't see any reason for them to do very different from what they are doing. If you look at the communication, media and entertainment then they have also done reasonably well in this quarter.  

What are the growth prospects in the retail vertical?
The projects didn't kicked-off and this is the main reason for the slowdown in the segment but there is a hope that projects will start now. Non-initiation of projects in the last minute leads to a slowdown in verticals like retail. 

Is it an industry trend or is just limited to your business?
It is not so and I will not call it a trend because we have done well in retail. We have also done very well in the past and are seeing a good pipeline there as well. Strong pipeline in most of the verticals and I can see it happening and that's why I can't see any trend that will have an impact except in volatility in decision making and other external factors. But, I don't see it is a significant change in the trend as such. 

Growth in earnings from North America has come down from 7.7% to 5.8%. What is the trend over there?
There are a lot of opportunities and we have a strong pipeline in North America as well. We have done extremely well in Europe and the UK but we have had a situation in North America in the past but I think that it is one of the situations which will fix over a while.  

The special dividend of Rs40/share was a surprise element for the shareholders. So, should we expect something more on the divided front? 
We have a practice of giving back 80-100% free cash flows to the shareholders. But, the instrument, i.e. dividend or share buyback. in which it will be given back is decided by the board and the board made a decision to give it back through this mechanism and we did it.

You have said that the Q2 order book is the highest in the last 6 quarters. Now, let us know about the kind of impact this order book will have on Q3 and Q4?
It is a mix-bag. Certain deals are very long, i.e. 10-15years of engagement, which is good for us but you may not see a huge amount of revenue coming-in in the immediate quarters. So, it is the flip side. Thus, it is a mix of both and I don't think that I will be able to place those numbers. 

What's your level of attrition rate and what the trends are suggesting?
Currently, the numbers are quite good and we will like to compare it with our benchmark and where it should be. Although we are best in the industry, we still want to do better then what we have been able to do so far because 10-11% is also a big number, if you look at the absolute number. Normally, the attrition figure does not change a lot in Q3 and 

Campus hiring is also a big area where you give big numbers. Have the trend and slowdown have had any impact on the frontier or can have an impact on it?
Already, we have brought 30,000 people into the system and the numbers will remain the same next year as well. Interestingly, we have conducted the tests for next year, thus, we have plans to bring around the same number in the system next year. 

Where are you focusing and seeing opportunities amid global trade war and its uncertainties, BREXIT and other events at global and domestic levels?
We are supposed to opt any from the two options, i.e. either we have to look in terms if macros or the specific customers and the opportunities associated with them. And, we went with the second option, the specific customers, as we have very-long standing relations with several customers and we understand them very-very well. Our people have very contextual knowledge of those customers and that is how we are driving our business. Instead of worrying about the macro, we should be aware of and take necessary actions, and do things that are under our control, and we continue to focus on that. 

Are you looking forward to merger and acquisition at present, if yes, let us know about the geography, sectors and verticals at which you are seeing an opportunity?
It will be very difficult for me to point out any specific vertical or industry. We are on a lookout as we have grown significantly in the organic fashion over the years but that doesn't mean that we haven't acquired companies. We have acquired companies in different verticals and will continue to monitor and do that but it has been a decision which has to make financial and strategic sense for us. So, I would not be able to point out or give a specific answer to that but I think that we are on a constant lookout on that front. 

You would not like to say anything on any specific area but is there any specific vertical where you are seeing opportunity?
It has to make sense and we are not saying that we have to look only in this industry or any particular technology. The industry and technology together have to make sense for us to look into. 

Update us on the ongoing synergies and collaboration concerning Artificial Intelligence (AI)?
It is going good and our collaboration with Co-Innovation Network (COIN) that brings together the start-up ecosystem, innovation with academia and co-innovation with customers. We have, now, base-port set-ups across different locations on the globe and we bring in customers and these players and create an ecosystem that can drive innovation either it is machine learning or something else. 

Investments that you have planned in this direction to make sure that you are at the forefront of this technology gameplay?
If you look at investment than I think that our significant investment happens in the learning and development, huge and not only basically doing it in the class standing but in the real practical learning that happens. That is actually, the regular cost of doing business for us and we don't look at it as investment weather it is AI-enabled today or something else tomorrow. This becomes the fabric of our business and that is how we look into it and continue to invest in it. So, I think from an investment standpoint, talent development is a significant aspect of investment and building relations with start-ups and working with them in an ecosystem where we bring value to the customer together is an investment for us. These are various channels through which we invest and will continue like that.  

As an HR Head of such a big company would you like to mention some practices that should be brought in the company to make it make employees lives better?
We are going through a talent-revolution right now in the industry especially in TCS, where people will find new opportunities to build a strong foundation to build their careers in TCS. And, by doing that they will find something significant to catch on to learn about new customers, technology, and bring them together will cause an evolution. That will change organisations as well as the TCS and at large to the nation. 

Talent crunch is a major concern and has been a talk of the town as every sector is talking about it. What is its relevancy in your sector?
We have been into the business for a long time and in the process, we bring talent come from the colleges and make them learn a lot at TCS. Then they are deployed on the project. So, I am not worried about the talent crunch as such. What we do with people we get and how we train them in hard and soft skill and everything along with that to make them valuable for our customers and the larger community.