Tata Consultancy Services Limited FY08-Q3 Analysts/Investors Conference Call

Transcription

1 Tata Consultancy Services Limited FY08-Q3 Analysts/Investors Conference Call January 16, :00 hrs IST (09:30 hrs US EST) David Nelson Ladies and gentlemen, good morning and good evening. Welcome to the TCS Earnings Conference Call. I am Rochelle, the moderator for this conference call. Please note that for the duration of this presentation, all participants will be in the listen-only mode and this conference is being recorded. After the presentation, there will be an opportunity for you to ask questions. Should anyone need assistance during this conference call, they may signal an operator by pressing * followed by 0 on their touchtone phone. At this time I would like turn the conference over to Mr. David Nelson, Head of Global Investor Relations. Thank you, and over to you Mr. Nelson. Thank you Rochelle. And good evening. I would like to welcome everyone and thank you for joining us for the TCS Earnings Call for the third quarter fiscal year And I am David Nelson, Head of Investors Relations for TCS. Please note that this call is being webcast through our website at and an archive including transcripts will be available on the site for the duration of the quarter. The financial statements, results presentation and press release are also available on our website. Our leadership team is present for this call to discuss results. We have with us Mr. Ramadorai, CEO and Managing Director. S. Ramadorai Good evening, good morning everyone. David Nelson Mr. Mahalingam, Chief Financial Officer. S. Mahalingam Good evening and good morning. David Nelson And Mr. N. Chandrasekaran, Chief Operating Officer. N. Chandrasekaran Hello everyone. David Nelson Mr. Padmanabhan, the Head of Global Human Resources. S. Padmanabhan Good evening good morning to everybody. David Nelson And Mr. Vandrevala, Head of Global Corporate Affairs. P. Vandrevala Good morning good evening everyone. Page 1 of 18

2 David Nelson Ram will begin with a brief overview of the company s performance, followed by Q&A session. As you are aware TCS does not provides specific revenue and earnings guidance. Furthermore anything said on this call which reflects our outlook for the future or which can be construed as a forward looking statement must be viewed in conjunction with the risk that the company faces. These risks are outlined on the second page of our results presentation. With that I would like to turn the call over to Mr. Ramadorai to begin with the proceeding. S. Ramadorai Thank you and I just want to make some opening remarks. One is we have crossed $4 billion in terms of revenues in the first three quarters which was achieved over four quarters in the last financial year. The whole diversified business model of TCS continues to drive growth at a fairly accelerated pace despite challenging external circumstances. We grew year-on-year for the three quarters 41% in dollar terms and 24.32% in rupee terms and that too on an increasing base. For the nine month period all the major geographies have shown growth, Latin America grew at 60.9%, North America 35.4%, APAC at 64.6%, Europe at 66.3%, and India at 39.94%. We earned in this quarter, namely, the 3 rd Quarter, as the first Indian IT company to reach $1.5 billion in terms of revenues which in dollar terms is a 37% growth year-on-year. We are confident of our robust business model which is agile and at the same time innovative and able to cope with the challenges. In terms of geographies, the established markets like the US has crossed $2 billion in 9 months. And UK has also been growing in absolute terms driven by our full services offerings and multiple services to the large customers. This quarter North America grew at 2.2%, UK at 4.9% and Europe at 24.2%. And the growth in emerging markets - Latin America, APAC and India of course were above the company average. We have currently 5,500 plus people in Latin America and 1,100 plus people in China and 400 plus in Hungary. So we have grown across domains and services. BFSI continues to be strong and it has grown above company rate sequentially. Travel, Utilities are the other sectors, which have shown growth above the company growth rate and emerging services continue to grow like Enterprise Solutions GCP and BPO. We did announce a number of large deal wins during the last few months, example being the Neilsen Company, IMSS in Mexico and BSNL in India. Overall, we announced several deals of over $50 million and we have grown across geographies and service lines like I said. Customers are migrating to the higher revenue bands including the number of $100 million customers increasing to 7. In terms of profits for the 9 month period it is $941 million and the operating margins have improved despite 2.3% appreciation in the rupee against the dollar in this quarter. We remain cautiously confident about the future, while it is our investment in the full services play and the global network delivery model helping us to diversify our revenue base, big wins coming from across geographies, good qualified pipeline across sectors and markets, large deal wins during the quarter. Page 2 of 18

3 We added 28,000 people to-date in the three quarters which is well in line with the full year target, and will continue to add to 32,500 overall for the year in terms of hiring. And we have also made 22,000 campus offers for the year FY09. We have shown through deals already won that we have the resilience to move beyond BFS and other sectors which are growing. But there are some reasons we need to be cautious where some of the sectors in the US are going through some turmoil and as we have seen in some of the results. The jury is still out on whether it is recession or how long it would last. We focus and continue to be close to the market and appreciate the issues customers are facing and are well positioned to work with them on transformational projects or on utilizing the budgets most efficiently. Large customer budgets are already set but if the slowdown s economic impact on business plans increases, it maybe revisited. I believe, in summary, TCS has demonstrated all-round leadership even through difficult times; the current environment of course necessitates caution. Our new and emerging market strategy is working, diversified portfolio is a necessity in these times and the intention is not to rely or be dependent on any one sector, geography or one service. The GNDM or the Global Network Delivery Model is helping us not just enable our customers run their business but it is helping them to transform their business and also ability to support across global locations. The results demonstrate our ability to think and perform with agility in response to the environment. And I will hand it over to my CFO, Mahalingam to give you the details, Thank you. S. Mahalingam Thanks Ram, and as Ram has indicated, we are pleased with our performance during this quarter. We have achieved growth across geographies, verticals and service lines and also as you can see, improved our profitability. Overall revenue grew 5% quarter-on-quarter in rupee terms which is 7.2% in, US dollar terms. Year over Year revenue grew 21.9% in rupee terms that is approximately 36.8% in the US dollar terms. Ram has already talked about the various geographies. We have seen strong growth across Europe and our emerging markets of Latin America, Asia Pacific and India as our strategy of aggressively expanding globally and thus diversifying our geographical base is continuing to pickup traction. In North America, our largest market, our share now stands at 49.5%; the share is reduced slightly as we continued to expand our offshore leverage for North American customers. I want to give you an overall breakdown of our revenue growth, quarter-over-quarter that is compared to previous quarter the growth is like this: volume it is 5.31%, pricing it is 53 basis points, efforts mix 81 basis points, foreign exchange has negatively impacted us to the extent of 1.61% and therefore we get to 5.04%. So, just repeating it volume has given us an increase of 5.31%, pricing 0.53%, effort mix that is more onsite, slightly higher onsite share that has given us an increase in revenue of 0.81%, and foreign exchange negatively impacting us to the extent of 1.61% total 5.04%. Second, let us look to what is driving our improved profitability of 33 basis points in Q3 over Q2. Q2 operating margin was 23.83%, pricing productivity SG&A has given a positive figure of 1.25%, foreign exchange had a Page 3 of 18

4 negative impact of 92 basis points and therefore there was an impact of a positive 0.33% resulting in a Q3 operating margin of 24.16%. I am repeating it Q2 operating margin was 23.83%, pricing productivity SG&A gave us a positive 1.25%, foreign exchange impact negatively impacted us to the extent of 92 basis points and therefore, overall there was a 33 basis point improvement resulting in 24.16% as the operating margin for Q3. There was, as you can see, a very negligible impact due to the decrease in offshore percentage during Q3 in the margins. I would like to discuss the impact of our foreign exchange hedging program which I believe is a key differentiating factor for TCS. Since we qualifiy for hedge accounting treatment, we are able to effectively match the gains of our hedge program to offset the negative impact of an appreciating rupee. As you know a certain portion of our gains and losses are recognized as revenue and a certain portion are recognized as other income. In Q3 we have a total outstanding foreign exchange contract portfolio of $3.1 billion US dollars. During the quarter, exchange rate movement negatively impacted operating profit by Rs million. This is the economic impact that we translate in the revenue at the lower rate. We, of course, gained as far as the expenses are concerned incurred in the overseas currencies and the negative impact totally was Rs million. This was more or less offset by gain from hedging of Rs.450 million which was recorded in revenue. In addition, we had a foreign exchange hedge gain of million recorded in the other income line. We also more than offset the net loss of million from translation collection and remittances. Therefore, the net foreign exchange gains in the other income line were million. Rs million was the net foreign exchange gain in the other income line. We have a mature, proactive and comprehensive foreign exchange management program which has allowed TCS to maintain profitability comparable to prior year in spite of approximately 12% appreciation of the rupee over this timeframe. And we have done it prudently, we do not get into any complex structures as far as foreign exchange is concerned, we have largely relied on options and we have only hedged US dollar, Pound Sterling and Euro. As I have spoken about numerous times over the year, to get a better understanding of the profitability of our operations, the foreign exchange and the other gain should be added back to the operating margin, I have always said that, because this has been a conscious effort from us. And if we did that, that is adding the incremental forex gain for Q3, operating margin increases from 24.16% to 25.59%. Adding the incremental forex gain for Q3 YTD, year-todate, the operating margin would be 25.42%. I just want to illustrate it to show that we are in line certainly with all our actions in terms of maintaining the margins. This is essentially in line with our full year operating margin target of achieving approximately 25%. This ability to sustain our profitability is also reflected in the net income for the quarter compared with the year ago in Q3. Q3 FY2008 net income was 22.46%, Q3FY2007 net income was 22.74%. In closing, I would like to emphasis our confidence in our financial model and in our ability to continue to effectively manage costs so that we will be able to sustain our strong levels of profitability. Thank you. Page 4 of 18

5 David Nelson Julio Quinteros Rochelle I would like to open the floor for questions at this time. Yes Mr. Nelson. Ladies and gentlemen we will now begin the question and answer session. [Operator Instructions] The first question comes from the line of Julio Quinteros from Goldman Sachs. Please go ahead. Sorry can you just walk back through the currency numbers, the operator jumped on my line so I am sorry I missed the revenue contribution and the other income component from foreign exchange. S. Mahalingam Julio what I had essentially talked about is that we have an economic impact of Rs million, because we lost in revenue translation we gained in overseas expense translation, the net effect was million. And in our revenue line we have Rs.450 million recorded as a gain from hedges that is appearing in the revenue line. In addition to that we have recorded in the other income a gain of Rs million. So these are the two gains that we have recorded Rs.450 million in revenue line, Rs million in other income line. Together they give us Rs.1.11 billion. Julio Quinteros Alright thank you. And also just wanted to go through the other component in revenues that showed enough to take this quarter the product side, can you talk a little bit about the product side. And also is that most of that coming from India, because I am just noticing on a sequential basis a big jump in your India revenues and I am assuming that some of that is tied to the increase in the product contribution. S. Mahalingam We have some large system integration contract in India. And we have already started delivering on that and some part of it certainly has come that is why there has been a big increase as far as the product and equipment line. Julio Quinteros Okay got it. And just normally one thing you mentioned about the large clients budgets being in place, but also subject to review down the road. Can you just characterize it relatively to maybe last year with the budgets that are in place, what is your sense in terms of the pace of growth in those budgets? And then overall and then the opportunity for you guys to grow within those budget sizes as potentially there is more opportunity for off shore work. Can you just kind of characterize the budget that you have seen and how much have it grown and the opportunity that you guys will have within those? N. Chandrasekaran This is Chandra. If you look at the budgets, we have met with key customers and then we are in the process of finalizing our execution plans for the next fiscal year. And what we have seen is that the customers are sticking to the growth plans at this point in time. We have not received any special warning from any customer from the budget point of view and also if you really see the deal pipeline that we have announced during the press Page 5 of 18

6 conference, the number of deals that we are pursuing is significantly larger compared to the same time last year. The only caution that we want to exercise is because still we are hearing lot of negative news from the financial services firms in the US. So, we just want to be cautious and keep absorbing it in the coming months. Apart from that we think that the plans are intact. Julio Quinteros Okay and then at this point just relative to your expectations are you seeing anything on the lines of the project deferrals, project cancellations anything with clients coming back to you and saying we need to reassess plans. N. Chandrasekaran No. Julio Quinteros Joseph Foresi Joseph Foresi Okay, thank you. Thank you Mr. Quinteros. The next question comes from the line of Mr. Joseph Foresi from Janney Montgomery Scott, please go ahead Mr. Foresi. Hi gentlemen. Just wanted to ask a question sort of how you are looking at the business again compared to where we were last year? Have you adjusted any of your plans based on this cautious tone for spending on financial services in the US? And if you have made adjustments what are they? I think if you look at the financial services side of the business again the share of the financial services revenue has gone up this quarter compared to the previous quarter. And the growth is very healthy. And if you look at the business from multiple dimensions from a geography perspective we are well spread, we are growing in all the emerging markets as you would have seen in the results the rate of growth in the emerging markets is significantly higher, because of the smaller size. So we are going to continue to focus on these emerging markets be it Latin America be it Middle East or Asia Pacific or even India for that matter. Then coming to the industry segment, the deals that we are pursuing is again well spread across multiple industries even in the deals that we announced this quarter, the deals in the retail sector, media, couple of deals in the automotive sector and manufacturing sector. So it is kind of well spread even when you see the deal pipeline that we are pursuing is spread across multiple industries as well as geographies. I would say that of the top 25 deals we are pursuing maybe 1/3 is in the US and 1/3 in the UK/ Europe and 1/3 in the rest of the world that is the way it is spreading itself. And from overall business model perspective, I think you know we are staying focused on full services all our individual services lines whether it is the infrastructure business or the BPO business or engineering business they are all growing, we want to bring those services together more and more in a more integrated fashion to be able to offer stronger value So as of right now there has not been any significant change in the way you approach the business? And you know you talked about where the deals are coming from, has that changed on an annual basis? Page 6 of 18

7 Joseph Foresi Joseph Foresi Joseph Foresi Joseph Foresi Mitali Ghosh Yes it has. And how so. I mean we never used to see that so many opportunities in the emerging markets, primarily because we were also very small in those markets and now we are getting at a critical size. So we are able to pursue those markets. The second one is that Europe is accelerating as you can see this quarter upwards of 20% growth on a sequential basis in Europe. So, Europe is accelerating that gives us the ability to take larger deals in Europe. So it is more of the effect of the acceleration of the emerging markets then an effect of a slowdown in the Americas, is that correct? I would not say strongly to this statement because Q3 is typically a slow quarter in the US because of the Thanksgiving and Christmas and the related effects. So the Q3 growth always has been slow in the US. We need to really see how the Q4 pans out in the US then after that we can probably make some judgmental comments. So would you say, and this is my last question, would you say that you would have full visibility on growth for next year within the next month or two and is that any different than it was last year? Thanks. At this time we have a good visibility for the key customer relationships we have and also the fresh deals that we are pursuing at this point. The only thing I would again add even though we have said it many times is that we are cautiously looking at all the general happenings in the marketplace especially in the US both on the financial services sector and also at the general US slowdown. And if any corrections we have to make because of that, if any picture emerges during this quarter we will come back to you. Okay, thank you. Thank you Mr. Foresi. Ladies and gentlemen in order to ensure that the management is able to address questions from all participants please limit yourself to just one question per participant, thank you. The next question comes from the line of Ms. Mitali Gosh from DSP Merrill Lynch, thank you. Please go ahead. Yeah thanks for taking my question. Just again looking at the outlook for 2008 just trying to get a sense in terms of since you mentioned that clients have come back to you on their spending plans for the year, if you could give us a bit more color in terms of how budget priorities maybe changing given that there certainly is an uncertain economic environment? Page 7 of 18

8 N. Chandrasekaran See what we are expecting is that there will be more offshoring of the maintenance and application development related business. The thing that we need to get a better handle on is about the transformation programs. If customers are going to look at their spending on new systems development in the same way as before it is something that you know we need to carefully watch, but in terms of the application maintenance and ADM business or even with all the other services the infrastructure or BPO etc, we think that the offshoring is going to continue. Mitali Ghosh So in terms of the kind of spending on the different services, are you seeing any change there? N. Chandrasekaran As I said on the ADM side and the infrastructure or the BPO assurance and these kinds of services the spending is going to continue. The only area that we need to carefully watch is the new programs large scale programs, transformation programs those are the budget spends that we need to carefully look at. Mitali Ghosh In terms of the pricing discussions that you may have had more recently, what are you hearing from some of your large customers, are there customers looking for maybe volume discounts or any kind of trends that you can share with us? N. Chandrasekaran In terms of the Master Services Contract renewals, we did not have many renewals during the October-November-December because typically that is not a quarter you would like the contract to start. So we do not have many renewals in that quarter, but in the coming quarter on the Q1 we expect more contracts to come for renewals as well as signing. And we continue to expect an upward revision in pricing both in the renewals as well as the new contract that whether it is increased to 3% to 5% and 5%to 8% as we have said before to be something that we want to wait, but at this point in time definitely we are expecting a positive uptake but we cannot really give specific percentage at this point. Mitali Ghosh Right and finally if I may just ask one question to Paddy: the hiring for the quarter was a little bit lower than what you had planned initially and you know if that may be a reflection of caution on the environment? S. Padmanabhan No I think Mitali you should look at the first 9 months total hirings. From the first 9 months we have added a gross of over 28,000 employees into the company. Yes in the 3 rd Quarter we had initially talked about 9000 but we have met all our business requirements with the gross hiring of about And we are well in line to achieve the overall growth in total hiring of about plus. Mitali Ghosh Okay, thank you. Thank you Ms. Ghosh. The next question comes from the line of Ms. Julie Santoriello from Morgan Stanley, please go ahead. Page 8 of 18

9 Julie Santoriello Thank you. Just looking for a little historical perspective here, many economists now are calling for a longer recession here in the US. And the last time we had one was back in And I am just wondering if you could share us with some of your experiences back at that time. How did business unfold for TCS back in 2001 as the economy here in the US began to slow, were you taken by surprise, pull back in discretionary spending, did you see customers closing it off or postponing things and did that end up, do you think ultimately accelerating the offshoring? S. Ramadorai Well I think we looked at 2001, the offshoring really took off because in an environment where budgets are cut, they want to encash the maximum out of the budgets then they would move offshore because offshore made a lot of viable sense. And the growth across organizations within industry grew really from an offshore perspective and then India perspective. What good processes and systems we have built over the years is to deliver the same kind of efficiency not just from India but also other emerging locations case in point being Uruguay, Brazil or Hungary or China. So to us if a story like 2001 is going to be repeated, offshoring is certainly a big possibility, but more so, offshoring across the various global delivery locations which we have. So cost reductions and efficiencies would be very necessary to run the business and then whatever we can release out of that can be used for transformation of businesses. We would believe that there can be an offshore uptake if the situation warrants it from the budget freeze or budget reduction point of view. Julie Santoriello And do you recall seeing a lag generally in terms of when the business began to slow in the US from that point to end customers began to step up their off shoring. S. Ramadorai Yeah there will always be certain delay with regard to budget allocations and how they are going to be shifting, but the fact of the matter is geographies like Europe or Latin America or India or APAC region are certainly growing and growing at a much faster speed. So the balance is between how much of the budgets we can pull from running the business in markets like US and how much of growth we can target for in growth markets like emerging markets at the end of the day. So I think the lag effect will always be there, but then we do not see any budget cuts as we speak or budget reductions. So as a result hopefully the 4 th Quarter should show a continuing performance. Julie Santoriello Sandeep Shah Alright thank you. Thank you Ms. Julie Santoriello. The next question comes from the line of Mr. Sandeep Shah from ICICI Securities, please go ahead Mr. Shah. Yes sir. In the earlier remarks what you said is we have met some of the key clients and they are sticking to the growth plans and after that you said that we have to look in terms of the budgeting for the discretionary spending or the transformational spending. So in terms of the key clients when we met, Page 9 of 18

10 are the growth plans only being stuck for the ADM business or is it also being confirmed in terms of the new transformational deals? N. Chandrasekaran This is Chandra. For all the key clients out there we have definitive plans for the next year. We have a pretty good idea about the areas that we are going to work on in terms of both the ADM business as well as the programs that we are currently working on which are transformational in nature. There we have not had any cancellations,, that is the point I was making. Then the other point I was making was, any economic slow down or more things happening related to the sub-prime issue can always have a possible effect on the spread out of transformation budgets. And so that budget either we know in some cases and in some cases we do not know, we have to be very, very cautious about factoring that in our growth plans and the wrap-up plans that is the only point I was making. Otherwise we pretty much have our plans in place for this year for our key clients Sandeep Shah So we are looking at an uncertain macro situation do you believe that the budget plans on the transformational deals or the discretionary spending may not be released in the first half, it may take time from the client in terms of the budget on these projects? N. Chandrasekaran Very likely, and that is why we are repeatedly mentioning the word caution, because everyone is asking about this sub-prime issue as well as the slowdown. The only thing that I will say is that all these transformation project, you have got to be very cautious whether the projects will get kicked off on time or there can be delays etc. So yes, we will factor that in our plans. Sandeep Shah And second, sir on CNBC you said that the volume growth is close to around 5.3% can you give us the idea in terms of the volume growth in the international business? S. Mahalingam Okay you know the international business the volume growth was 3.98% close to 4%. Sandeep Shah Sandeep Shah Okay so sir, it seems a little lower. Is it just because of the North America holiday season or there are some unexpected it is a quarterly aberration or an unexpected delay from some of the international clients? See there are two things, one is definitely we need to factor in the US geography because from that scale every percentage point matters and third quarter is not the best quarter for the US geography. You definitely have to factor that, but otherwise if you really look at it in dollar terms I think the overall revenue growth has been pretty satisfactory. Okay, thanks. Thank you Mr. Shah. The next question comes from the line of Mr. Moshe Katri from Cowen & Company, please go ahead Mr. Katri. Page 10 of 18

11 Moshe Katri Moshe Katri Moshe Katri Moshe Katri Yeah thanks, I realize that you guys do not give guidance on a forward basis, but given what you are saying out there, do you think that the March quarter is going to be any different from a typical March quarter for TCS at this point. What is typical, if you can describe for me? Well typically means that as you know the March quarter is probably the weakest quarter throughout the year. We do have some sequential growth but again on a relative basis it is weaker than other quarters. So again you do not have to give guidance, but is there anything you think that is going to be not within that scenario being a typical quarter? It is a very difficult question to answer because we do not give guidance. And anything I say can be construed, but all I can tell you is that we have given you enough deals this quarter, okay. If you really see the number of deals which are 50 million, 100 million, 200 million or 1.2 billion etc. So we expect that some of those big deals will start ramping up sometime in the quarter. All of them may not start on January 1 st some will start during the quarter. And then we have also given you a very healthy pipeline and then we have said that 25 deals of 50 million plus is what we are pursuing. That should give you enough indication about the health of the business. And please look at this from an annual perspective. On a 9 months basis, we have grown 41% in dollar terms on our scale. So these are all the indicators that we would give you to say that we are quite positive, but very difficult to quantify how much we will do. I appreciate the clarification, is there anything in terms of the project ramp so far during the month of January that will indicate any areas of concern and any further call or is there anything that so far you feel has been kind of unusual in terms of project ramp of those new deals? Not at this point, not till today. And then finally obviously as we go along, until we get to the end of the March quarter I guess maybe you will get some better clarification in terms of clients IT spending plans and visibility. In your point of view, is there a specific timeframe that is going to be beyond that you are going to say: hey we are kind of safe, we are feeling a bit better, we are going to drop this cautionary comment about our outlook going forward? Well you can definitely get an answer for that question in the analyst call after the March quarter. S. Mahalingam Moshe, Mahalingam here. Ram has already talked about things being quite alright except that given that we have so many things happening around us, we are cautious and we are watching the situation. I think from our point of view there is the reasonable amount of clarity at this time, unless something Page 11 of 18

12 really drastic happens which can happen anytime of the year. So I think we are reasonably confident at this time. Moshe Katri Shubhashini G. Thanks a lot. Thank you Mr. Katri. The next question comes from the line of Ms. Subhashini Gurumurthy from JM Financial, please go ahead Ms. Gurumurthy. Hello congrats for the great results. My question was regarding the hiring outlook that you had talked about that is If you look at the first 9 months, you have already done around 28,000 gross addition and my math indicates that this would imply a volume growth of around 4% or 3.5% or so for the next quarter which seems to be pretty much lower than what we have seen in the last 2 years. So would you like to comment on that? S. Padmanabhan This is Paddy here. See the 32,500 is an indicator where we started the whole year. It is important to know that for the planning purpose we have to keep track of three factors, the gross addition, the utilization, and the attrition so from that perspective I think we are well in line to reach the target and go on. It does not have to exactly stop at 32,500. And I want to add to couple of comments to what Paddy said. See on our base of over 105,000 associates-close to around 108,000 associates, we have lot of flexibility in utilization. Though we are operating at 75% to 79% that is the range we have been operating we have got some cushions there to pull it up. So, we will balance it along with the hiring plans and attrition. So we will keep looking at this number and we will balance it nicely, but also it is not only about just hiring the number of people, it is also what skill sets we are hiring and that mix also we are carefully looking at. On going forward we are also trying to see more revenue coming out of some of the non-linear initiatives which are not directly related to the people deployed. There is outcome-based etc. This is not for the immediate quarter or something like that. It is more for longer term. All these things should play out as we go forward, in the hiring numbers. S. Padmanabhan Also in the campuses we have already made 22,000+ offers for FY2009. Subhashini G. If I may ask another question, one more question, basically our top client this quarter has grown by around 4.7% in dollar terms whereas top 6 to 10 clients have grown very strongly at around 32%, so could you throw some color on what is happening on the non top-five clients here? I think if you look at the client concentration I think we are very, very happy with it because the growth pattern is pretty nice. The top 1 client, top 5 clients, top 10 clients, all of them are growing either at the company average or slightly better which is a good position to be in and obviously the top 5 to 10 clients are smaller than the top 1 to 5 clients, so their propensity to grow faster is higher. So that is reflected in the numbers, so we are happy with Page 12 of 18

13 that and the other thing we are very happy about is the migration of clients to the different revenue ranges, there is 100 million, 50 million, 20 million, 10 million, or 1 million customers, there is significant addition in every band, so I think that is very healthy, I would say. Subhashini G Great! Just one last question if I may? This was regarding the margins in the Europe geography which has moved considerably this quarter, it was around 28% last quarter and this quarter it is around 32%, so could you throw some light as to what has happened there? In fact US margins have dipped, but Europe has seen very good improvement in margins. S. Mahalingam No, you need to take the currency factor also on that front and also you should give us credit for productivity improvements and so on. Subhashini G. Kanchana V. Kanchana V. Okay thank you. That is all from my side. Thank you Ms. Gurumurthy. The next question comes from the line of Ms. Kanchana Vydianathan from Pacific Crest Securities. Please go ahead Ms. Vydianathan. Hi. Thank you. My first question is actually, looking at your international revenue sequential growth, this quarter it was only about 6.3%. You compare that with the September quarter where it was about 11.2%. Now even looking at the historical trend TCS typically has a strong growth in the September and the December quarters. So can you help us understand what happened in this December quarter and did you have any negative surprises? I do not know why this pattern is being attributed to us first of all. There is no pattern that the second and third quarters are superior for TCS, firstly. The second thing is in the December quarter, in the US time and material revenue tends to be lower. If at all if you want to say one pattern in the December quarter time and material revenue growth in the US geography tends to be lower, that is only trend I can give you. Well apart from that I think the growth in all other markets have been pretty good. In the US also it has grown from last quarter to this quarter, UK has also grown, so we are pretty happy with that. Okay, a follow up question, I guess looking at the revenue from UK, looking at the September quarter and the December quarter, if you look at the sequential revenue growth rate that is below the company average growth rate, can you help us understand what exactly is happening in UK? I mean, I do see that you are growing significantly in the rest of Europe, but not so much in UK. S. Mahalingam Kanchana this is Maha here. New contracts are also coming to UK. I think basically looking purely at one quarter one should not really be coming to conclusion. UK continues to be a very, very good geography. It is just that Page 13 of 18

14 as far as this quarter is concerned, there is a slightly lower growth, but it is not indicative of any issue or trend and so on. Kanchana V. Kanchana V. Kanchana V. Harmendra Gandhi Harmendra Gandhi Harmendra Gandhi Also I would say that the pipeline in UK remains healthy. Hopefully, we will be announcing some wins in the UK geography shortly. Okay, one final question. I guess with respect to North America, the low sequential growth is mainly due to the low number of billing days in the December quarter, could you just attribute it to that or was there anything else? It is the function of the holiday season, Thanksgiving, and Christmas holiday seasons in US that is correct and also there has been an offshore shift that is marginal. While the onsite-offshore, I also want to make a comment on this onsite offshore shift, while the shift of India is about 1.6 percentage points, but you increase the GDC leverage by 60 basis points and 100 basis points onsite, that 100 basis point movement onsite has happened outside of the US, to that extent there is a hit in the US growth. Okay great. Ms. Vydianathan, do you have any other questions? That would be it. Thank you very much. Thank you very much. The next question comes from the line of Mr. Harmendra Gandhi from Lehman Brothers. Please go ahead. Hi, there is some talk on anecdotal evidence that large financial services clients are saying to the vendors that you should reduce prices to grow volume in the traditional ADM kind of business, have you come across this kind of situation? See, the answer to the question is no. All I would say is that the, I don t want to comment on specific clients, but we are not in that type of discussion. Do you think this is a real possibility as things may worsen a little? See, a customer asking for a price discount is always a possibility. Okay, thank you. Thank you Mr. Gandhi. The next question comes from the line of Mr. Andrew Steinerman from Bear Sterns. Please go ahead. Page 14 of 18

15 Andrew Steinerman This is Andrew Steinerman. I did not catch the end of that last response about price and could you just repeat what so is the possibility? S Ramadorai No what I was saying is that in general it is a hypothetical question whether it is possible that we will be asked for price discounts. That is always a possibility. Only the renewal of contracts brings up any of these discussions, so in the existing contracts we are not seeing comments about volume increases because of the pricing reductions or pricing discounts. So we have not had that pressure. Andrew Steinerman Okay, maybe I could ask the question in a different fashion. If we were in a more difficult volume environment whenever it might occur you know this year, next year whenever, what is the philosophy of TCS? Would you want to try to increase volume at the sacrifice of price or would pricing be more a gating factor for volume? N Chanrasekaran I think in general we keep the price as a priority and margins are pretty important for us, but one cannot make generic statement because each situation is different and how is the deal structured, you are talking about onsite pricing, offshore pricing, fixed-price contracts; some situations we may go in for a fixed-price contracts where we have a complete control over the execution. In some situations there are transformational opportunities by combining IT, infrastructure and BPO, so there are different possibilities, but by and large our focus is to keep the pricing as an important item especially when there is a demand environment. S. Mahalingam Andrew this is Maha here, I just wanted to add one more to that. Given our very good geographical spread, you have seen that the investments that we have made in the various geographies to increase our selling and marketing capabilities and so on whether it is in emerging country geographies or in some of the geographies where we are essentially creating a bigger push and so on, I think there are lots of alternatives for us if such a situation were to develop. Andrew Steinerman Ajay Mathrani Okay that sounds very reasonable. Thank you so much. Thank you Mr. Steinerman. The next question comes from the line of Mr. Ajay Mathrani from Deutsche Bank. Please go ahead. Yeah, good evening and thank you. My question is related to competitors. Have you seen any behavioral changes in key competitors in terms of pricing or looking at markets or clients that they were not so keen on earlier? I think the competition situation has become very broad-based now because in different markets there are many competitors now, all the global players Page 15 of 18

16 are very much participating in every deal, but in general, I do not think it is a price war, I do not think so. I think we are able to get the right price as long as we articulate the value proposition. That is the situation and I think that competitors are doing the same thing. I am not seeing any one dumping prices. Ajay Mathrani Ajay Mathrani Ajay Mathrani Suveer Chainani Great. Thank you. If I ask one more, in terms of deal pipeline we have been mentioning 20 previous quarter, 25 this quarter, what has been the average win rate like and say the average sales cycle? We announced 9 large deals this quarter in Q3 and some of the deals that were in the pipeline in last quarter still continue to be in the pipeline. So, that should give you a fairly good idea about our win rate. And sales cycle? Sales cycle varies anywhere from 4 to 6 months or sometimes even longer, but it depends on the size of the deal, the complexity of the deal. If it is a pure ADM contract, it may be shorter, but whereas if it is a full services contract and multi-geography contract it takes longer. sometimes the company do themselves and sometime they partner with third party advisory firm, so quite a bit of variations there. All right great, thank you. Thank you Mr. Mathrani. The next question comes from the line of Mr. Suveer Chainani from Macquarie, please go ahead Mr. Chainani. Thank you for taking my question. Good evening. My question is that I understand that your client profile is changing what they were last year and what it is this year. So which is good that you are diversifying beyond the US, but when you talk to your top clients, when you were speaking to them this quarter in terms of how their demand is for your kind of services vis-àvis when you were speaking to your top clients last quarter in terms of demand for your services what are the changes in nuances in terms of. are you feeling more bullish, bearish or similar, taking into account that clearly the base effect is coming in, what I am trying to gauge is that is the growth rate from your top clients similar or poorer from last year? See if you look at the last 4 to 5 quarters and if you look at our customer metrics and you see at least we give the top 1, 5, and 10 customers, we can clearly see the growth rate, all those customers have been nicely growing and also in the million large clients, they have been migrating clients pretty nicely. On the last 12-months basis there have been a significant migration of clients into higher revenue bands, so obviously it indicates the propensity for growth in the client segments, but if you really ask what are the trends? Clients now recognize us more as a full services player, clients definitely want to engage TCS on our infrastructure capability, operations capability, assurance capability and also in consulting capability and you see that in the Page 16 of 18

17 growth of these particular service offerings and the other thing that is playing out especially in the case of customers who are global, is our Global Network Delivery Model. Customers are interested in leveraging TCS, for example in Latin America and India together at the same time because they have an operation, which requires both those two locations and India and China at the same time, there is client who is operating between India and China, clients who operate between India and Latin America and in the future probably India, Latin America, and China altogether, so these kind of trends are emerging, so as long as we are able to ramp up our delivery capability in these markets, and build a portfolio of offerings that we have here in those centers, and are able to execute it with the same operational efficiency for us and for them, for us from the margin point of view, for them from the quality point of view, I expect that there is an opportunity for growth. Suveer Chainani Suveer Chainani Suveer Chainani Nimish Joshi OK, slightly to quantify that, in terms of growth in their budgets for your kind of services. How has that changed from last year to this year? Growth in the budgets of your kind of services, how is that changed from last year to this year? It is going up, primarily. The growth rate is going up are you saying, so if last year they were saying I cannot generalize. There are clients where the size is very large and their growth rate will be smaller, but in absolute terms they are growing and they are using TCS for more services, but they are already spending million dollars, then the growth rate is going to be definitely smaller in those clients, but if you typically take clients in the range of 20 to 40 or 50 million dollars obviously in those cases the opportunity or the growth rate of what they spend with us is growing. All right. Thank you and all the best. Thank you Mr. Chainani. The last question for today is from the line of Mr. Nimish Joshi from CLSA, please go ahead Mr. Joshi. What would be the realized rate US dollar INR rate for this quarter and what was it last quarter? S. Mahalingam As far as this quarter was concerned, it was Rs as far as US dollar goes, and last quarter was Rs Nimish Joshi Okay thank you. Page 17 of 18

18 David Nelson Thank you Mr. Joshi. Ladies and gentlemen that was the last question; I would now like to hand this conference over to Mr. David Nelson and the management for their final remarks. Thank you Rochelle and now I will turn the call over to Mr. Ramdorai for his concluding remarks. S. Ramdorai Thank you for all your questions. Hopefully, we have answered and addressed all of them. All I wanted to summarize was the diversified portfolio of TCS and with a spread and focus across geographies, verticals, and services and delivery through a global network delivery model is working and is playing out very, very effectively. We will continue to focus on operational efficiencies and push all the levers for a full services play. Overall, the pipeline of deals which we articulated, 25 large deals we are working on, plus the deals which we won during the quarter would definitely ramp up. We are pleased with the results; we have hired 28,000 to date and going to be hiring 32,500 which we had committed at the beginning of the year. We have already made offers of 22,000 for the next year and the margin improvements will also be focused on. Overall, the robust results demonstrate our ability to think and perform with agility and the cautionary statements, which we issued is from the environment perspective more so, rather than any clients slowing down or the clients wanting to reduce the work. With that thank you so much and we look forward to meeting you again at the end of Quarter 4. Thank you, gentlemen from the management. Thank you, Mr. Nelson. Ladies and gentlemen, thank you for choosing the Chorus Call Conference Facility. Thank you for your participation and you may now disconnect your lines. Thank you. *** Page 18 of 18