Leading in Challenging Times Sustaining Profitable Growth

Transcription

1 Leading in Challenging Times Sustaining Profitable Growth S Mahalingam Chief Financial Officer & Executive Director Analyst Day, Mumbai 12 February 2008

2 Top Investor Concerns Sustaining Growth US economic outlook Maintaining Profitability Salary inflation Rupee appreciation Funding investments for future growth - 1 -

3 Sustaining Growth - Changing Profile of TCS Business Revenue by Geography Others 6.3% India 11.9% Americas 61.1% Asia Pacific 5.3% MEA 1.7% India 8.9% North America Continental 50.9% Europe 9% Europe & UK 20.7% UK 19.9% FY02 Revenue: $0.9 bn Ibero America 4.3% 9M08 Revenue: $4.2 bn Diversification provides protection from a slowdown - 2 -

4 Sustaining Growth - Changing Profile of TCS Business Revenue by Service Practice Assurance 3.7% Infrastructure Services 6.5% BPO 6.2% Consulting 3.4% Asset Leveraged Solutions 3.3% EIS 5.3% Asset Leveraged Solutions 1.6% Others 0.3% Enterprise Solutions 12.8% Enterprise Solutions & BI 10.8% ADM & EIS 87.3% BI 9.6% ADM 49.2% FY02 Revenue: $0.9 bn 9M08 Revenue: $4.2 bn Diversification provides protection from a slowdown - 3 -

5 Sustaining Growth - Changing Profile of TCS Business Global/Regional Delivery Locations FY02 FY03 - FY08-4 -

6 Maintaining Profitability Key Challenges Salary Inflation Impact of bps per year on a like-to-like basis from FY05 to FY08 Partially mitigated by broadening of the employee pyramid Some moderation anticipated in FY09 Rupee Appreciation Impact of ~300 bps on Operating Margin during 9M08 Incremental impact of ~35 bps for each percentage appreciation of the rupee Investments for future growth Integration of Acquisitions: Comicrom, FNS India business: Consolidation of capabilities added through CMC and Tata Infotech Global Network Delivery Model : Scaling up non-india centres BPO Platforms Products business: TCS Financial Solutions Consulting: Building critical mass, creating downstream opportunities - 5 -

7 Maintaining Profitability - Margin Levers Offshore Shift Cost Management Pricing/Productivity Currency Hedging 50.0% 40.0% 30.0% Offshore Revenue and Impact on Operating Margins 500 bps 400 bps 300 bps 20.0% 10.0% 0.0% 100 bps (50 bps) 125 bps 35 bps 200 bps 100 bps 0 bps -10.0% FY05 FY06 FY07 9M bps Offshore Revenues Impact on Operating Margins (RHS) Moving towards 45% revenue from offshore Positive impact on operating margin: up to 25 bps from each percentage point shift offshore - 6 -

8 Maintaining Profitability - Margin Levers Offshore Shift Cost Management Pricing/Productivity Currency Hedging SG&A and Impact on Operating Margins 25.0% 500 bps 20.0% 400 bps 15.0% 300 bps 10.0% 5.0% 0.0% 130 bps (20 bps) 120 bps (20 bps) 200 bps 100 bps 0 bps -5.0% FY05 FY06 FY07 9M bps SG&A excl. Employee Cost SG&A incl. Employee Cost Non-Employee SG&A Leverage (RHS) Continuous management of utilisation Ongoing cost management program - 7 -

9 Maintaining Profitability - Margin Levers Offshore Shift Cost Management Pricing/Productivity Currency Hedging Operating Margin Improvement from Pricing/Productivity 250 bps 200 bps 150 bps 100 bps 76 bps 174 bps 151 bps 207 bps 106 bps 131 bps 50 bps 0 bps 0 bps 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Continue to see pricing improvements of 3-5% - 8 -

10 Maintaining Profitability - Margin Levers Offshore Shift Cost Management Pricing/Productivity Currency Hedging The rupee has appreciated against all major currencies through the first nine months of FY08 Currency Pair Realised Rate FY07 9M08 Change USD-INR (10.85%) GBP-INR (5.71%) EUR-INR (3.46%) Foreign Exchange Gains/(Losses) in 9M08 INR m Effect of Currency Fluctuations -On Operating Profit -On Other Income Total Gains from Hedging - In Operating Profit - In Other Income Total (1,982) (487) (2,469) 900 2,378 3,278 Our hedging program has protected our profitability Net Impact

11 Maintaining Profitability - Margin Levers Offshore Shift Cost Management Pricing/Productivity Currency Hedging Hedges Outstanding as on 31-Dec-2007 USD 2,739m GBP 80m EUR 122m Well-protected for the near future Approach is conservative: ~80% of hedges are options; no exotics

12 Sustaining Profitable Growth INR m FY06 FY07 9M08 % of Revenue INR m % of Revenue INR m % of Revenue Revenue 132, , ,667 Operating Income 33, % 46, % 39, % Net Income 28, % 41, % 37, %

13 In Summary Well-poised to sustain strong growth Markets, Service Offerings and Delivery Locations are diversified Equipped to maintain profitability Offshore Shift Cost Management Pricing/Productivity Currency Hedging Maturing of strategic initiatives

14 Leading in Challenging Times Sustaining Profitable Growth