Put in co-ordinated efforts to keep cash collections high: TCS CFO V Ramakrishnan

While Tata Consultancy Services’ revenue and margins disappointed analysts, the company’s cash collections were surprisingly robust. TCS Chief Financial Officer V Ramakrishnan tells ET Prime that co-ordinated efforts led to cash collections and that improving growth prospects in the next two quarters would boost margins. Edited Excerpts:
Cash conversion was surprisingly high this quarter. Could you give some colour on the reasons for that?
We are very closely engaged with all our customers, and ensure that all the processes which happen in terms of, not only delivery of the projects on time, but then the conversion of that into cash in terms of all the other things like billing, revenue recognition, follow up, etc. We needed to do those in a systematic manner. So it’s a hugely coordinated effort where our customer-facing teams and business-finance teams and the support from the finance teams, etc, they have to work together to make sure that it happens. It’s a huge team effort and collaboration which happens. Also, we work supportingly with the customers because some of them, some sectors are going through more pain than the others. So obviously there is some expectation for some accommodation. So we look at it very… from a case to case basis in a contextual situation as well as our own relationships. So I think it’s a combination of various things. At the same time, while the cash conversion has been good, we also make sure that from a partner and supplier ecosystem, especially in the MSME sector, etc we have taken care that there are no delays, and we have helped them during this process.

In the conference call with analysts, TCS’ CEO Rajesh Gopinathan said the reason the cash collections were high was also because of the stimulus that governments had provided which supported the balance sheets of clients. Is TCS putting in place any systems to deal with any cash collection crunch when the stimulus is withdrawn?
See, as I said earlier, we’ll continue to work closely with customers, have a very close eye on the entire process. That will go with vigour. And, it’s a customer to customer specific situation and also sectors and economies. So, we will see how it goes. While there is a possibility that… See, the stimulus is given so that they can all respond in the current situation and manage the process. Stimulus cannot be something which can be given every time, right? So it is to help the organisations get back on their feet and find how they can recover. So our larger hope is, they recover fast and they recover effectively so that our business also grows. When that happens, I think the cash conversion, etc should not be any larger an issue than it normally is.

Are you looking at changes in how you manage your financial modeling to take into account the unprecedented nature of the Covid-19 crisis?
I think just the way we look at the projects, it’s a continuously evolving process because nothing is static; it’s a very dynamic situation, right? You estimate a certain project and then when you start executing it, you have various inputs which go into it, some inputs are on the same level as what you anticipated, some should be different. The key is, are you in a position to know these things early enough? Do you have systems and processes and metrics which can tell you how things are progressing? So that is one. So a lot of it has been built internally, and they have been fine-tuned and they have been improved upon continuously over the years. Second is, do you have the depth of knowledge within your teams, their experience, to look for those signals and take those actions? Our teams are getting more and more experienced in this. Our business groups are all almost semi-autonomous business groups which have complete P&L responsibility and also responsibility for the balance sheet part of it. So they take many of these business calls in the light of data as well as… the financials are continuously evolving, it has nothing to do only with the current situation. If the current situation warrants some changes, they would continue to do it and we are doing it on a day to day basis.

What levers does TCS have left in order to boost its margin over the year, given that the company has said it will not try to reduce employee costs and that travel has potentially already been used?
See, I think travel by itself is not a huge contributor, though it’s easily visible for everyone. II think the fact is, when you have a contraction in growth, that itself has a direct impact on margins if nothing else changes. So, other things being equal, if your recovery and the growth comes in, it should also give him that improvement in margins. Other than that, see, we had almost close to 300 bps through the various measures which we took, other than only employee related. Employee related we did not cut down, as you rightly pointed out. But, other than employee costs, we had 300 bps margin levers which we did. We’ll continue to do that. But with things opening up, some of those discretionary spend which we completely curtailed, may have to be released. So it will be a mix of both. But I think for me the fundamental reason would be that you get back to a growth path and that it continues to improve from there. Then automatically we will have the margin levers as well.