Tata Consultancy Services Limited

Transcription

1 Tata Consultancy Services Limited Q2 FY09 Earnings Conference Call. Ladies and gentlemen good morning and good evening. This is Rochelle, the moderator for your conference call. Welcome to the TCS Earnings Conference. Please note that for the duration of this presentation, all participants lines will be in the listen-only mode. And this conference is being recorded. After the presentation, there will be an opportunity for you ask questions. Should anyone need assistance during this conference call, they may signal an operator by pressing * and then 0 on their touchtone telephone. At this time, I would like to turn the conference over to Mr. Kedar Shirali, Director of Investor Relations TCS. Thank you and over to you, Mr. Shirali. Kedar Shirali: Thank you Rochelle. Good evening and welcome everyone. Thank you for joining us on TCS Earnings call for Quarter 2 fiscal year I am Kedar Shirali from Investor Relations. Please note that this call is being webcast through our website and an archive including the transcripts will be available on the site for the duration of the quarter. The financial statements, results presentation, and press releases are also available on our website. Our leadership team is present on this call to discuss our results. We have with us Mr. S. Ramadorai, [Chief Executive Officer and Managing Director]. S Ramadorai: Good evening, friends. Kedar Shirali: Mr. S. Mahalingam, Chief Financial Officer and Executive Director. Kedar Shirali: Good evening. Mr. N. Chandrasekaran, Chief Operating Officer and Executive Director. Good morning and good evening. Page 1 of 24

2 Kedar Shirali: Mr. Phiroz A Vandrevala, Head of Global Corporate Affairs [and Executive Director]. Phiroz A Vandrevala: Hi, everyone. Kedar Shirali: And Mr. Ajoy Mukherjee, Head of Global Human Resources. Ajoy Mukherjee: Hi everyone. Kedar Shirali: Ram, Maha, and Chandra will each give us a brief overview of the company s performance followed by a Q&A session. As you are aware, TCS does not provide specific revenue and earnings guidance. Furthermore, anything said on this call which reflects our outlook for the future or which can be construed as forward looking statements must be reviewed in conjunction with the risks that the company faces. These risks are outlined in the second slide of our results presentation. With that I would like to turn the call over to Mr. Ramadorai to begin the proceedings. S Ramadorai: Thank you Kedar. TCS performance in Quarter 2 and the first half of 09 has been satisfactory. Revenues for the quarter were Rs.6,953 Crores, in US Dollar, $1.574 billion, a growth of 8.5% in Rupee terms and 3.2% in US Dollar terms. Having said that, I must add that despite the turmoil, international revenues grew by 9.5% sequentially. We have always said our focus has been on sustaining long-term growth, organically and inorganically, balancing growth across markets and verticals, improving productivity of all resources and ensuring a sustainable margin scenario. Our drive towards tightening operations is reaping benefits and the highlight of this quarter has been our operating performance. Going forward, this will be our focus area. In an environment that has been far from easy, we had strong client addition, 51 new clients have been added. Significant improvement in gross margin basis points through improved offshore mix, stable to better pricing, increased productivity, exchange gain and a great project execution. Offshore mix, per se, improved by 187 basis points, Page 2 of 24

3 utilization went up to 81.1%. Overall, our operating margin improved by 217 basis points. We also reduced our overall debtor days outstanding. On a half-yearly basis TCS revenues grew by 24.8% at over 3 billion US Dollars and profits grew 3% to $567 million. As you all know the volatility of the Rupee this quarter and this impacted our numbers on a net basis. We have always said that our hedging program was to protect revenues at a certain Rupee-Dollar rate, but there has been a significant hedging impact given the sharp depreciation of the Rupee in Quarter 2 after having appreciated earlier. Even so, net income in Quarter 2 has grown by 144 basis points over Quarter 1, because we have delivered on our core operating parameters. We remain focused on improving and optimizing our operational performance and continue to focus on margin improvement opportunities. A few comments about our recent acquisitions of the Citigroup Global Services - it is a very strategic acquisition and will also bring immediate benefits. The accompanying $2.5 billion contract which is a take or pay, nine and a half year contract is insurance in the current scenario. Also, I believe that not everybody has grasped the strategic significance of the deal. The domain-led banking process expertise we will acquire through this deal gives us a unique strategic advantage going forward. It allows us to offer banks an outsourcing solution for their core operations and offers this core domain-intensive BPO. This will allow clients to derive much more value from their technologyspend in addition to their IT service spends. Overall our deal pipeline is healthy and on the people side we have recruited 18,664 people in the first half of the year to be ahead of our annual hiring target. We will achieve our target for FY2009 between 30,000 and 35,000 gross additions. In addition, we have also made almost 25,000 offers to engineering graduates to join us next financial year. As you can see, we are continuing to make investments for our growth in terms of employee addition, investments in sales and creation of Page 3 of 24

4 infrastructure. We believe that even in the current situation, there are significant opportunities in the process of financial consolidation and other business trends. As an agile organization we are ready to mobilize the resources, domain and technical capabilities to grab opportunities if they arise. With that, I will now hand over to Chandra to talk about the demand scenario and provide a perspective on operations. After that, Maha, our CFO, will talk about the financials. Thank you. Thank you Ram. Operationally, this quarter has been an excellent quarter for us. We have done very well considering the circumstances. I would like to summarize the performance of this quarter by covering four important themes: growth, margins, what is happening in the BFSI sector, and finally, the deal flow. First, growth: the growth has been very robust this quarter. We had a volume growth of 6% and it was accompanied by a 30 basis point increase in the pricing realization and strong client additions. All international markets and most industry verticals, that is, all industry verticals except one, have posted positive growth in constant currency terms. From a sustainability perspective, we added 51 new clients and most importantly, moved 32 new clients into the 1 to 10 million annual revenue category. This has been the highest number in the recent quarters. In terms of large deals, we closed 4 large deals in the quarter - in banking, retail, pharma, and public services, one each. And these deals came from US, UK and India. Further, the pipeline of 20 deals is well distributed both across verticals as well as across geographic markets. Second, in terms of margins, from a margin perspective we managed to provide an improvement sequentially on all key operating levers, resulting in a 366 basis points improvement in gross margin and 217 basis point improvement in operating margin. The important numbers are the offshore leverage went up by 187 basis points and we drove the better productivity and pricing. Utilization, excluding trainees, Page 4 of 24

5 crossed 80%, which I had also talked about as a possibility during the earnings calls last quarter. Third, in terms of the BFSI sector, revenues from the BFSI sector continue to grow in spite of the current financial industry situation. Specifically, six of TCS financial services customers went through difficulties in the global industry crisis. We have carefully analyzed them and have looked at both the revenue side and their receivables exposure. From a receivables perspective, we have made provisions in this quarter on a conservative basis on whatever we think we have to do. From a revenue perspective, most of the revenue is not likely to be impacted. Additionally, we have most of our clients on the other side of the problem in the sense that these are the large banks which have acquired some of the other institutions and we are seeing growth with those clients. Specifically in terms of deals in the banking and financial services sector, the product implementations have been delayed but we continue to see demand for our services business in the BFSI clients. Trend in client additions indicate that [in] the near term, new accounts are likely to come up with additional growth. Now, no significant impact has been felt on other verticals and we continue to see robust revenue growth from manufacturing and retail. In terms of deals, we signed four large deals excluding the Citigroup Global Services Ltd. deal which we talked about during the quarter. And these four deals have come across BFS, retail, government, and pharma vertical. We continue to believe that the current economic environment is an opportunity for our clients and for us to streamline operations, drive sequential productivity gains, and to overall setup our organization for the next phase of growth. As for our outlook, as a practice we do not give guidance. I would like to simply say that we are confident of growth and are focused on the following four aspects: 1) Improving various operational parameters continuously, 2) Our deal pipeline is healthy, 3) Client additions are good and 4) We are continuing to invest for future growth as you can Page 5 of 24

6 see in the headcount additions during the quarter. Thank you and over to Maha. Thanks Chandra, I would also repeat that TCS performance has been satisfactory as Ram has already articulated. In an environment full of uncertainty and turmoil, we recorded revenue of Rs billion corresponding to US $1.574 billion for the quarter. We have recorded a strong operational performance in Q2. We have delivered sequential growth and improved the quality of revenues as well, by shifting work offshore. Revenue increased 8.47% Q-on-Q and 25.29% year-on-year in Rupee terms, that is, 3.21% and 14.72% respectively in US Dollar terms. The following is a breakdown of revenue growth quarter-over-quarter - volume: 6%, pricing: 30 basis points, effort mix that is onsite to offshore since that is moved to offshore, there has been a decline in revenues to the extent of 99 basis points, foreign exchange: positive 3.16 and this totals to 8.47%. We grew our gross margin by 366 basis points this quarter to 45.71% primarily by improving our offshore leverage: 55 basis points, productivity: 165 basis points, and forex gains: 146 basis points. Cost management continues as a program and by increasing utilization rate, improving project management and through continuing focus on each item of cost, we have been able to achieve a significant improvement in operating margins by 217 basis points sequentially. This improvement has come despite headwinds of provision for a few BFS accounts which have been under stress and also in the news. Our provisions for bad and doubtful debts have been high and have taken away incrementally 55 basis points from our margins. The breakdown of various items have impacted margins quarter-overquarter are as follows: Q1 operating margin was 22.06%, forex impact on this has been a +1.46%, effort mix was a +0.55%, improvement in realizations and productivity was a +1.65%, bad debts provisions was Page 6 of 24

7 a -0.55% and other SG&A was a -0.94% and this totals 2.17% and we reached the Q209 operating margin of 24.23%. I will deal with foreign exchange now. In such volatile times one must stay focused on the basic objective of the hedging program and not be unduly concerned about foregoing short term risky opportunities to profit from a volatile exchange rate. Q2 was one of the most challenging quarters in terms of forex volatility. US Dollar which was at the level of Rs.40 in April witnessed a sharp movement between Rs and Rs.47 during Quarter 2. The cross currency rates between USD and GBP Euro also moved in a volatile manner. Volatility index of USD for instance was at 14% in Q2 as against 6% in the prior quarter. It is in times like this we need a strong and consistent hedging program. As against an average rate of Rs to the US Dollar in Q1 we have realized revenues at Rs in Q2. At the end of Q1 we had kept you informed that our existing hedge position of $276 million at Rs.43 would have meant a loss of Rs.50 Crores this quarter. When the Rupee appreciated once again at the beginning of Quarter 2, we added to our hedges because of the need to protect our revenues as normal. The surprising U-turn in the Indian currency because of added volatility has resulted in a hedging loss of Rs.261 Crores or Rs.2.61 billion under other income. We have said that the hedging operation is designed to protect budgeted rates of exchange so that our performance measures up to our budget. We do not bet on different scenarios but examine what needs protection and take necessary actions. We have done this since last year and then it benefited us extensively. From a risk reduction perspective it is not only important to hedge Dollar revenues to protect the conversion rates but also hedge the Dollar against GBP and Euro. Our decision to cover crosses also helped and had we not hedged this, the impact would have been much higher. Page 7 of 24

8 As far as Q3 is concerned, we have hedged $180 million in the range of Rs.39 to Rs that means that we do not participate on those 180 million above Rs And we have hedged another 300 million in the range of Rs to Rs which means that beyond Rs we do not participate. Overall, we expect the currency volatility to continue and looking at a scenario that changes rapidly. At the net income level, we have grown to Rs Crores or Rs billion in Q2 over Rs Crores or Rs billion despite the hedging headwinds. Our EPS for the quarter is Rs as against Rs in the prior quarter. In closing I would like to recap: we had a sterling quarter in terms of operations and execution. All our profit levers worked in tandem to produce 217 basis points improvement in operating margins. We had our share of the problems caused by the external environment and have made adequate provisions for any debts considered doubtful. We are in a challenging environment and our focus has to be on managing risks, continued growth, and delivering margins. Our efforts to create a resilient, long-term business model are working well and we expect to continue on this path of operational efficiencies going forward. Kedar Shirali: Rochelle, you can now open it up for Q&A. Sure, thank you very much. Ladies and gentlemen we will now begin the question and answer session. Anyone who wishes to ask a question at this time may press * and then 1 on their phone. If you wish to remove yourself from the questioning queue please press * and 2. Participants are requested to use only handset while asking a question. You are also requested to limit your questions to one per participant. Anyone who has a question may press * and 1 at this time. The first question is from the line of Joseph Foresi of Janney Montgomery Scott, please go ahead sir. Page 8 of 24

9 Joseph Foresi: Hello guys, I was just wondering if you could just talk a little bit more, I know you have covered it pretty extensively in the intro, on the demand environment and I guess I am looking for two particular areas that maybe you can talk about. One, if you can talk about what you are seeing from your present client base, [whether they] have halted specific programs? Are they stopping specific programs? Are they not willing to talk about discretionary spending? And then on the flip side, obviously you had some new signings - I wondered if you can talk about what is pushing those people to do this work now, even though it is sort of a tough time to be spending money. I wonder if you can talk about both of those. First of all, I would like to answer this question in two dimensions. One is with the current clients we have not seen any specific cancellation of projects at this time. Specifically, in the financial services industry, as I said, we are seeing traction in the services business and also, especially with some of the institutions going through mergers, we are seeing opportunities for us in the integration activities. Then in terms of new signings, these deals have come from multiple sectors, we have signed deals in financial services, retail, government sector as well as pharma. And the deal pipeline is spread out across different geography locations. Joseph Foresi: With the Citigroup acquisition, do you expect to maybe gain market share from some of your competitors in some of these accounts where there are some mergers? N. Chandrasekaran: The Citigroup acquisition brings us a unique capability. If you really look at your services portfolio to serve large and mid-sized financial services firms you need three capabilities, 1) The technology, in terms of applications, 2) Technology in terms of infrastructure, 3) Third is Operations. We have a very strong application and infrastructure portfolio. On the operations side, we have a lot of capability in the horizontal services. The Citigroup acquisition brings in a unique domain-based hosting capability and positions TCS uniquely among all service-providers across the globe to do this for different financial Page 9 of 24

10 services institutions. So we believe this, in the medium term, will position us very well to serve our clients world over. Joseph Foresi: And secondly, I wonder if you could talk about some of the metrics - it seems like utilization is obviously having a high level here, do you have any headroom on that and also on the pricing front, are you seeing any renegotiations in pricing and pricing coming down or no? On the utilization I had answered the same question in the last quarter analyst call - we had said that on our base of 120,000 people plus, we have definitely headroom to improve the utilization which we used to maintain between 77% to 79%. We said that we will probably move it up 80% to 81%. We saw that as a lever and we used it. If there is a need, we can push it up a little more, but our intent is not to only work on utilization higher and higher, but in the case of increasing demand, exercise this as a lever on a need basis. Then on the pricing side, we had an improvement of about 30 basis points this quarter. By and large, we are stable on pricing - we are not seeing [it go] down. Kedar Shirali: Next question Rochelle. Thank you. The next question is from the line of Mr. George Price of Stifel Nicolaus. Please go ahead. George Price: Hi, thank you very much for taking my question. Just a follow up on the pricing. Things appear to be stable, relatively stable at this point. I guess I would like to hear your perspective on what do you think the outlook for pricing is, maybe over the next two to four quarters, maybe drawing back on your experience in the last downturn. What do you see as the puts and takes - what is similar in terms of impacts to pricing this time around versus last downturn? And what is different that that might not be the same and net-net how do you see that impact in pricing? I think based on the situation that exists today we can say that the pricing will be stable - that is what we expect. And the focus for us is Page 10 of 24

11 on execution - timely completion of projects and quality of deliverables and as long as we continue to focus and bring [to bear] our range of capabilities and deliver well, we think we can maintain the pricing. George Price: Okay and then, one other question on the integration work that you discussed is - where are you, do you think, in terms of that ramping up and how big do you think or how sizable do you think it could be? Is this a modest, if it is incremental work and is the timing more likely a year from now or could it be larger, could it be sooner - if you could give us your perspectives on that? Thank you. I think [in] terms of integration work, we are in the early days. At this point in time, the plans are being draw and analysis is being done and specific project discussions are happening. And I would say that this will happen in the coming quarters during the calendar year In terms of volumes, whether it will be very heavily intensive, etc., we have got to wait, but the important point is, in the financial services sector, all our key clients present opportunities for us and we expect to do work in this area apart from any other area in terms of developmental work. Kedar Shirali: Next question Rochelle. Thank you. The next question is from the line of Sandeep Shah of ICICI Securities. Please go ahead. Sandeep Shah: Yeah sir, just on the forex, you mentioned that last time you said we lost in this quarter at HTM at around 43 it would be roughly 50 Crores. And last time the Rupee has depreciated by Rs.3 on an end-to-end quarter basis this time it has been depreciated by around Rs.4 but this 50 Crores has almost become 4 times. So is there something which has happened during Q2 which was not there at the time of discussion of Q1 results? You know, firstly, that was at the rate of Rs.43 and if you really look at it, the range has moved from Rs to Rs.47. So there has been a phenomenal movement and lots of revenues are also coming at Page 11 of 24

12 Rs which is the closing rate. And therefore, we do talk in terms of averages of Rs.44 and so on, but you have got to be looking at different positions at the month-end and so on and then the revenue accrues. And that is a substantial one. So that has been one movement. The other movement will also be in terms of certain losses in other subsidiaries and so on some of the other currencies, like Brazilian Real, that moved up. The third one is, we had also taken additional positions during the quarter when the Rupee had moved down to about Rs to Rs.42 range and we have protected our revenues in order that we would realize higher than the Quarter 1 average rate and so on. So that again was another factor which essentially resulted in an overall level of Rs.261 Crores. Sandeep Shah: So what is the outstanding hedge and what is the average realized rate of that hedge? See, [for] the outstanding hedges, let me give you some figures. As you know, we do essentially large deal via an auction and so on. So as far as Q3 is concerned, we have got $480 million where the maximum participation is at Rs There are number of options, but this is the weighted average of it. In Q4 we have got $190 million US Dollar whereas the participation will be limited to Rs And in we have got $349 million where the participation is limited to Rs.41 and beyond that, we have $231 million where the participation is limited to Rs So these are the various hedges, and OCI figure is already there in the website. And totally, you will find that [Rs] billion is being show in OCI. Sandeep Shah: Okay and as you have given the breakup of this OCI, can you share that breakup of OCI to be debited to P&L in the next three to four quarters? Page 12 of 24

13 See the thing is you are essentially working on the basis of the rates that are prevailing at various point in time. In fact, at the end of last quarter, we had run series of lectures on how the foreign exchange accounting is done and if you just go through and I think some of them are at the website you should be able to figure that out. It is not that the same figure will come in, because if the rate turns out to be different, whether it is appreciating or depreciating, it would be different. Just for an example, last quarter we have said that Rs.500 million would come in as far as Q2 is concerned if the rate was 43, had it been Rs.42 it would have been much less. Sandeep Shah: Ok, and the next question is in terms of the demand trends in the verticals beyond BFSI. So is there any indication that there are clients asking for some kind of a IT spend cut or is there an indication of billing rate pressure in those verticals? We have already covered it - from our point of view, we are not seeing any impact on other verticals. We are also seeing growth opportunities in Manufacturing, Retail, Pharma and other sectors, so that s our take at this point. Sandeep Shah: Okay, thanks and all the best. Thank you Mr. Shah. The next question is from the line of Kanchana Vydianathan of Pacific Crest Securities, please go ahead. Kanchana Vydianathan: Hi, thank you for taking my question. I guess, my first question is looking at the offshore percentage of revenue that s been increasing, can you help us understand, how much of that is actually been driven by your clients who are pushing you to do more work offshore? See, the offshore leverage target is always, you know, we are collaborating with the clients and we have been saying for sometime that the offshore leverage is something that we will be pushing and in this environment, I can tell you that clients also like it. That s the general way I can answer the question. Page 13 of 24

14 Kanchana Vydianathan: Okay, got it. And I guess one question with regards to the pricing as a follow up. As you have already mentioned that the pricing is stable, but can you help us understand are you seeing any sporadic renegotiations of contracts at this point where clients not just in BFSI, but even other verticals are going back and relooking at your existing contracts and trying to have discussions with you on pricing? No, we have not had a renegotiation of any price. Kanchana Vydianathan: Okay and one final question, I guess if you have seen good growth in Europe this quarter in UK and in Continental Europe. With respect to wide concerns out are there [whether] we are going to see a slowdown in Europe as we are seeing in North America, can you help us understand what is your confidence level, I guess going into the next two quarters, that you will be able to sustain the growth that you are seeing in Europe or are you seeing early signs of weakness there, thank you? As I said we don t give guidance and while we are confident of growth I would always say in this current environment, we have to be cautious. Currently, the deal pipe[line] is good and we are focused on improving operational parameters and also we are investing in adding people. So, that s the indication that I can give. Kanchana Vydianathan: Got it, thank you. Thank you Ms. Vydianathan. The next question is from the line of Mr. Anthony Miller of Tech Market View, please go ahead. Anthony Miller: Yes, thank you gentlemen. I wonder if you could give us please an update on Diligenta - there are still four things I am particularly interested in. Firstly, how are you progressing with the platform transformation, in other words, when will that platform be complete? Related to that, when do you hope to bring on the next client on to that platform? Can you also give us a sense of what you think the impact will be of HCL s acquisition of Liberata, which operates in that space? Page 14 of 24

15 And finally, can you just tell us what the margins are please for Diligenta? Thank you very much. Phiroz Vandrevala: Yeah, in respect of the platform we are pretty much on track. We have made two deliveries out of four that are scheduled and a key critical delivery will be completed in February 2009 and so far, everything that we have seen and heard seems to indicate that the platform will be life-changing as far as the LMP business is concerned. We have added one more client that we had to the Pearl Group and clearly our focus is, when we entered this business, not to have a lift and drop model. So we are clearly waiting patiently till we have our new platform, after which we will aggressively pursue opportunities in the marketplace. But then as there has been an opportunity to move directly to the new platform do the offshoring and everything else that we were looking at. I don t want to comment on the HCL-Liberata situation. If you have been tracking the industry you would know what the state of Liberata and their clients is. So something that s you should take a call on. And on the marketing side as I said we are reasonably confident that once we have the new platform we will be in a much better shape to make sure that we will be in a position to win most of the business that will be on the table. Anthony Miller: Yeah. The last question was actually what the margin is for Diligenta? Phiroz Vandrevala: Okay, sorry, I heard it as marketing. As far as margin is concerned, we are on track and we ll see a significant improvement once we have the transformation completed. Anthony Miller: Are you in double digits just yet? Phiroz Vandrevala: Yes. Anthony Miller: Okay and just to clarify what you just said before, you said you had another client after Pearl. Are you referring to SunLife Canada which Page 15 of 24

16 is not actually operating on the Diligenta platform. There is no new client yet on the Pearl platform is there, on the Diligenta platform? Phiroz Vandrevala: As I said the platform will be ready to take a substantial portion of that business post February Anthony Miller: That s great, thank you very much indeed. Thank you Mr. Miller. The next question is from the line of Mr. Moshe Katri of Cowen & Company, please go ahead. Moshe Katri: Thanks. You know it seems like there is a pretty big change in tone regarding the outlook when compared to your tone on conference calls in the past few quarters. Can you kind of address that - have we seen anything specific that happened during the quarter or maybe did you feel that you are better positioned than where you were, a quarter maybe two quarters ago, you have strong client additions, are you gaining share from some of competitors, maybe you can kind of address that because again it just feels that your tone seems a bit more positive than previous conference calls. I think all I can say is that, I don t know whether it s a big difference in tone, but I can tell you the key facts. First is that, on the financial services industry, we looked at the clients who are troubled as we said, six clients from our list of clients the financial industry who had difficulties. And we looked at the receivable situation and then whatever we feel has to be provided for has been more than provided for in this quarter, that s one side of the equation. And on the growth side, we believe that the kind of clients we have, we are trying to gain from the current situation and we expect growth in the next fiscal year you can say. That s the financial services industry situation. And then we have not seen any project cancellation in any of the other sectors and we are seeing a healthy deal pipeline, so that s what we are reflecting. As Ram articulated, having said all of these, the environment in which we are operating has been [an] extremely turbulent one. That was the Page 16 of 24

17 only factor which was putting the caution and you know, that we have got to watch. Otherwise all the things that we are seeing I have articulated to you. Moshe Katri: Chandra, when you talk to customers do you feel that you are going to see the 09 budget cycle kind of on time compared to previous years or you think it s going to be pushed out by couple of months, which is really what happened in 2008? See, it s going to be very client specific. I think what is going to happen is that there are, see look at it like this, there are going to be clients who are highly leveraged in terms of the global network delivery model and there are two things that can happen, if there is additional things to be leveraged, they will push that very quickly because they know the model and if there are any transformation project they want to do, then they will leverage the global delivery model - that s one thing that will happen. And there are clients who are not fully leveraged, will leverage the global delivery model definitely for cost efficiency some of their IT sort of efficiencies. Specifically from the budgets point of view, some clients who are in the middle of the situation may take longer to finalize the budget. They maybe incrementally awarding the budgets, so that whatever essential has to happen will happen, but I don t see a broad industry trend where the budgets will postponed. That is not what I am hearing. Thank you very much. The next question is from the line of Diviya Nagarajan of JM Financial, please go ahead. Diviya Nagarajan: Hi, I know that there is a strong addition in the lower end of your client base this quarter; could you give us a sense of the mix of the clients that we have got here from what verticals we primarily have these clients? Yeah, we have as I said, I have had about 32 clients into the 1, 5, 10 million category, which I think is very, very positive one from our point Page 17 of 24

18 of view and the mix of these clients are across verticals. A good bit of clients in Manufacturing, Retail, Travel Sectors, Utility Sectors as well as Financial Services sector and also in the US and outside US. Diviya Nagarajan: Okay. We have also seen a very sharp increase in your application development and maintenance this quarter, which seems to be bucking the trend we have seen with other players so far. Is this because of some large deals coming on [the] scene this quarter - what's happened there? See, I think that is a trend that may continue because in situations where clients want to get optimized, I think that there is an opportunity for increasing the ADM work. The second is that that s also reflected in the volume growth you saw. And again, it maybe very specific to clients. Sometimes you are working with the client who has not leveraged with the global delivery model, then there is a good ramp-up happening in the application development and maintenance. Diviya Nagarajan: I know you don t give guidance, but if you look at your peers in the sector, they have all guided for flat and negative volume growth for the next quarter and there has also been some impact that they have guided for the cross currency movements. Are you confident of this volume growth trend continuing into the second half and bucking the trend so to speak? First of all we don t give guidance definitely and then all I can tell you is that, I can't give a specific number and I can't tell you whether this is sustainable or not, but in overall we are looking at some kind of a growth over the coming quarter. This is what I can tell you, but I don t have any numbers. Diviya Nagarajan: Well, thanks and all the best. Thank you Ms. Nagarajan. The next question is from the line of Nitin Padmanabhan of Centrum Broking, please go ahead. Nitin Padmanabhan: Yeah hello, I just had a clarification. If you look at the change in tone this quarter, is it because you are seeing that existing clients that you Page 18 of 24

19 have at this point of time are actually coming out and are looking at large ramp-ups or is it that in terms of new clients, post restructuring the sales force, you have seen a lot of new opportunities that are out there in terms of new client-add that are available? And you know a lot of people are referring to tones but all we are saying is that we are stating what we see and we have given the data points. And as I said the new clients add have been good and more importantly the clients add at the lower end of the revenue bands 1 million, 5 millions, and 10 millions have been good. So, we need to see how we can convert them and ramp-up. That is something that we will work on and as you know ramp-ups take time and 1 million plan doesn t translate your 5 million plan overnight night. It takes a few quarters. So, from a long-term point of view, it is a good indication. I can't tell you what will happen in the near term quarters. Nitin Padmanabhan: Alright, now the clients has been got in this quarter it s significantly much better than what we saw in last quarter. So I think we are seeing that restructuring really play out pretty well. But overall these clients that have really come through, is there any specific trend there in terms of, is it coming from some sort of vendor consolidation? Are these first-time offshorers? Or is there something specific as a trend that you might have noticed there? No, there is no such specific trend there that we can point to. Nitin Padmanaban: Okay and just one last thing, if you look at BFSI per se, you did mention that, the mergers and acquisition integration kind of projects would take some time, probably sometime mid next year or later next year. But overall if you were to sequence the kind of projects that would come out, let s say one in terms of integration and maybe few other possible kind of projects that could come out from these guys, what would those be and in what order could there flow, maybe just a thought process that you would follow basically? It s very very difficult to say. It could be consolidation of an application, it could be building up of a new platform, it could be rationalization of a Page 19 of 24

20 large application portfolio for a particular domain in the banking and financial services, it could be infrastructure consolidation. I mean, there are very new opportunities that you just need to work with the clients and see and what kind of opportunities we are able to capture and then be proactive about it. Nitin Padmanaban: So, what is your feeler in terms of when we would really see a large chunk of RFPs really coming out? I wish I can answer the question. Nitin Padmanaban: Okay fair enough, thank you. Thank you Mr. Padmanaban. The next question is from the line of Mr. Ashwin Mehta of Mangal Keshav Securities, please go ahead. Ashwin Mehta: I had a question regarding telecom, which seems to be underperforming even BFSI across the sector. What are you seeing there in terms of demand and secondly, in terms of enterprise solutions, we seem to be lagging our competitors with absolute decline over the last two quarters in both BI as well as in enterprise solutions, what are we seeing there? I think in terms of Telecom, we are having a slowdown in the established markets or major markets as we call it, but we are seeing opportunities in the emerging markets in telecom. So, I think overall it will get balanced. While we are not seeing huge ramp-up opportunities, we are seeing transformation kind of opportunities in the emerging markets in telecom. Yes, in the transformation deals, I think it all depends upon how you define transformation deals. When we define transformation deals, we really look at how you are going to transform something else, something end to end. We talked about Nielsen deal, we have signed about 2 or 3 other deals you know, even the passport deal this quarter we signed - these are massive transformation deals. Transformation deals - the sizes are large and we are making a huge difference in the way the business process is laid out for the company. Smaller Page 20 of 24

21 implementation of ERP and etc, we don t generally consider large scale transformations and there what we see is that lot of application support kind of deals may happen, implementation of large ERP application etc, yes there is a drop in those kind of deals. Ashwin Mehta: Okay and just one data point in terms of revenue impact of hedging this quarter, what was the amount we experienced? We were expecting 50 Crores, if the rupee were to stay at 43, what was the amount this quarter? No, Rupee did not stay at 43. Ashwin Mehta: No, but this quarter what was the revenue impact of hedging? Well, there is no revenue impact; you know we have already announced that as far as the hedging loss is concern, it was [Rs] 261 [Cr]. Ashwin Mehta: Okay, thanks a lot. Thank you Mr. Mehta. The next question is from the line of Kisalaya Singh of Black Stone, please go ahead. Kisalaya Singh: Yeah hi, thanks for taking my question. Yeah, can you hear me? Yeah. Please go ahead. Kisalaya Singh: Yeah sure, sir my question is, what is the value of contracts that you bidding for in the next 3 to 6 months and the strike rate that you are looking for in these bids? Also, what are you currently seeing in markets in terms of the prerequisites that your clients are asking for, especially when it comes to big transformational deals and how your new acquisitions might have given you an edge in the market vis-à-vis some of your small competition? Thank you. In terms of size of the deals we normally don t say what size it is. In general, when we say large deals, they are deals spread over multiple Page 21 of 24

22 year with material revenue. So we will leave it at that. So, in terms of transformation deals what our clients are looking for our clients are looking for big changes in business processes in terms of digitization, in terms of IT optimization, how we can bring the infrastructure operations and application know how together. Those are all the things clients look for and that s all the ways to operation capability. Kisalaya Singh: Is there a success rate that you guys are internally aiming for? I can't really discuss these specific details. Kisalaya Singh: Okay no problem, thank you. Thank you Ms. Singh. The next question is from the line of Ritesh Rathod of UTI Mutual Fund, please go ahead. Ritesh Rathod: Hello sir, you talked of seeing robustness in manufacturing, retail verticals and other verticals. So is it company specific, when I mean to say company specific is it TCS specific or the similar kind of growth rate is also seen among offshore vendor like, all of them are getting business from those clients basically, which you have? I have not studied other company results. If you look at our results for manufacturing and retail, we have seen growth both in this first quarter and as well as the last quarters. Ritesh Rathod: No, you are talking of outlook in terms of robustness for next coming quarters in manufacturing? I can only talk about TCS. I can't talk about other companies Ritesh Rathod: Okay, second thing, you also have done some cost containment stuff, which is more of the P&L line item and when I mean to say P&L, it s more of operating expenditure. Have you done similar stuff in capex side of things? You know, [with] capex we go through a very rigorous budgeting. Plus, we try and see if there is any value engineering possibility introduced Page 22 of 24

23 there. But to answer your question whether that stuff has had any impact on the operating margins this quarter, no. Ritesh Rathod: But have we changed our plan in the capex side compared to six months back, like two quarters back? No, we have not changed any plan, we continue as per our budget. Ritesh Rathod: Okay, that s from my side. Thank you Mr. Rathod. The next question is from the line of Dipesh Mehta of Khandwala Securities, please go ahead. Dipesh Mehta: I need one clarification. If I see the Q2 08 number, there is some revison, so any specific reason for that kind of revision in US GAAP? There has been no revision as far as - Dipesh Mehta: Q2 revenue, earlier it was around [US$] 1415 million and now. This is, so you are talking about last year? Dipesh Mehta: Right. Last year, when we moved over to USD figures and so on, we said that we would not be putting in any of the hedging figures in the revenue. Dipesh Mehta: Okay, so that is the reason and correspondingly, that forex loss or forex gain would be also adjusted in Other Income item? That is right. Dipesh Mehta: Sir, can you quantify that number? I don t have the quantification of the number now. Dipesh Mehta: Okay thanks. Page 23 of 24

24 Thank you Mr. Mehta. Ladies and gentlemen due to time constraints that was the last question; I would now like to hand the conference over to Mr. Kedar Shirali and the management for their closing comments. Kedar Shirali: Thank you Rochelle, I would like to hand over the call now to Mr. Ramadorai for his closing remarks. S Ramadorai: Like we said, we are continuing to make investments in terms of employee addition, investment in sales and creation of our infrastructure. Like I said in the beginning, we are rooted in strong fundamentals. Our approach is that of institutional building and value creation for our customers. Even in the current situation, we believe there are potential opportunities, whether it is in financial sector consolidation and / or other business trends. As an organization, which is agile, we are ready to mobilize the resources, domain and technical capabilities to grab the opportunities as they arrive. Thank you for being with us on the call this evening. Kedar Shirali: Thank you every one. Thank you very much gentlemen of the TCS Management. Ladies and gentlemen thank you for choosing the Chorus Call Conferencing Facility. Thank you for your participation and you may now disconnect your lines. Thank you. Note: This transcript has been edited to improve readability Page 24 of 24