20130111

CMC Q32013EarningsCall 11Jan13
Operator
Ladiesandgentlemen,gooddayandwelcometotheCMCQ3FY13EarningsConferenceCallhostedbyTataSecuritiesLimited.Asa
reminder,forthedurationoftheconference,allparticipants'lineareinlistenonlymodeandtherewillbeanopportunityforyou
toaskquestionsattheendoftoday'spresentation.Pleasenotethatthisconferencehasbeenrecorded.Atthistime,Iwouldnow
liketohandovertheconferencetoMr.AshishAggarwal.Thankyou,andovertoyou,sir.
AshishAggarwal,ResearchAnalyst
Yes, thanks, Chhatrasal. I, on behalf ofTata Securities I welcome you all to CMC LimitedQ3 FY13resultsconference call.From the
management we have Mr. Ramanan, MD and CEO and Mr. J. K. Gupta , CFO. Before handing over the call to the management, I
would like to thank the management for giving us an opportunity to host this call. Now I would like to hand over the call to Mr.
Gupta.Mr.Gupta?
J.K.Gupta,ChiefFinancialOfficer
Yes,thanks,Ashish.ThanksalotandverywarmwelcometoalltheparticipantsinthiscalltodiscussQ3resultsofCMCthatwere
approved by the board today afternoon. These results have been available on the company's website and I am sure all the
participantshadanopportunitytogothroughtheresults.
Q3resultsofthecompanycontinuedtoreflectthecompany'sfocusongrowthwithprofitability.Companyearnedconsolidated
operatingrevenueof492.69croresinquarterthree,whichisanincreaseof8%QoQQ124%YoY.
Servicesrevenuegrew7%QoQand32%YoYto464.59crores.Andtheshareofservicesrevenueintotalrevenuefromsharesof
serviceswas94.3%thisquartercomparedto94.8%inthelastquarterand88.9%inQ3oflastyear.
Internationalrevenuegrew11%QonQand38%YoYto336.62crores.Internationalrevenueshareintotalrevenuefromsalesand
servicesimprovedfurtherto68.3%from66.4%inthelastquarterand61.5%inQ3ofthelastyear.
Americacontinuestodrivegrowthintheinternationalbusiness.AmericansubsidiaryofthecompanythatisCMCAmericaInc.
grew14%QonQand36%YoYindollarterms.AndtheshareofAmericageographyinoveralloperatingrevenueincreasedto
60%duringthisquarter.
Companyearnedconsolidatedoperatingprofit,thatis,EBITDAofINR82.88croresinQ3,whichisanincreaseof9%QonQand38%
YoY,givingusanimprovedmarginof16.8%comparedto16.6%inthelastquarter,and15.2%inQ3oflastyear.
Wehadverygoodperformanceontaxfront.Companyearnedconsolidatedprofitaftertaxof61.06crore,whichisanincreaseof
24%QonQand48%YoY.Thatmarginalsoimprovedto12.3%from10.7%inthelastquarterand10.3%inQ3oflastyear.
Wewereabletobringdownouraverageeffectivetaxrateto23.7%comparedto25.3%lastquarter,excludingthetaxondividend
distribution by CMC America. Income from other sources was 2.56 crore compared to 1.53 crore in Q2, which includes INR 1.94
croreasearningfrominvestmentinmutualfunds.
Companycontinuedtoseeagoodtractioninthemarketplace.Itadded26clientsduringthequarter,whichincludesfourclientsin
America,twoclientsinEMEAandAPacregionand20clientsinIndia.Companyhadnetmanpoweradditionof473inthisquarter,
takingthetotalmanpowercountto11,224attheendofthequarter.
We had very good performance on cash flow front also. We ended the quarter with cash and cash surplus of 218 crores after
incurringcapitalexpenditureof22croreduringthequarter.
Ourinvestmentinmutualfundsattheendofthequarterwas115crore.Companywasabletoimproveourreceivabledaysfurther
from83daysto81daysduringthisquarter.
So if you look at this is the third successive quarter of an excellent performance from the company. If you look at cumulative
performanceforthefirstninemonthsinthisyear,ouroperatingrevenuegrew33%to14,103crores.Servicesrevenuegrowthwas
39% to 1,310 crore, international business growth is 48% to 935 crores, EBITDA growth is 44% to 234 crore, giving us an EBITDA
marginexpansionof131basispointsto16.7%infirstninemonths.
Profit after tax grew 55% to 168.89 crore, giving us fat margin expansion of 178 basis points to 11.95% at the end of first nine
months.Wewereabletoreduceoureffectivetaxratetoaround26%from32%thatwehadlastyear,verymuchinlinewithour
plansofscalingupbusinessoperationsfromSEZgivingusverycriticaltaxadvantage.
Sothiswasthesnapshotofinitialperformancethatwehadduringthisquarter.Andwiththis,I'llhanditovertoMr.Ramananto
takeyouthroughtheindustryinitiativeandthemarketoutlookthatwehavegot.So,Mr.Ramanan?
R.Ramanan,ChiefExecutiveOfficerandManagingDirector
Thanks,J.K.,andgoodafternoon,everybody.Andthankyouforjoiningthiscall.IthinkJ.K.hasverycomprehensivelycovered
the numbers. The key thing has been for us that our momentum, growth momentum has continued through this quarter and
hasinawayincreasedinthisquarter,becauseithasreflectedinthenumbersintermsofan8%growthquarteronquarterand
a24%growthYonY.
We have been focusing in the international market as all of you know, and CMC Americas, in particular, did very well with 11%
growthquarteronquarter.Andoverall,ourinternationallevelCMCAmericasdid14%andoverallinternationalrevenuegrewby
11%quarteronquarter.
We continue to see good traction in the key areas of system integration solution embedded in real time systems, digitization
services.Weadded26clientsduringthisquarterbothindomesticandinternationalmarkets;outofwhich,wesawgrowthandnew
clientacquisitionsinalltheSBUsthatwehave;customerservicesinIndia,embeddedandrealtimesystemsintheAmericas,andSI
solutionsinMiddleEast,AfricaandalsoinIndia.
Wecontinuetofocusonemergingareasnow,whichareemergingtrendsrelatedtobigdata,analytics,mobility,managementand
integration,andcloudrelatedservices.Sothesehavebeenfindingexpressioninsomeofthenewwinsthatwehavedoneinthe
US. Also our product solution base continues to get enhanced through additions to the technology in all of these segments. We
continuetoseesomeimprovementinproductivityandoperationalefficiencythroughvariousinitiativesthatwehavelaunchedin
thecompanyandthoseinitiativeshavealsoenabledustowinseveralrecognitionsinthemarketplace.
Inparticular,IwouldliketodrawattentiontothefactthatwewonHRExcellenceAwards,WomenLeadershipAwards,Innovation
Awards and other awards for solutions that we have deployed in the market place like the Intelligent Transport System that we
implementedatKarnataka,whichisafirstofitskindwheremorethan500busesusestateoftheartGPSbasedcommandcontrol
system, and for a large mine in the state of Maharashtra and Goa. We had implemented an integrated mining management and
control system. It again is a first of its kind in the country. So, these innovations are replicable in nature and would help us drive
furtheropportunitiesandgrowthduringthecomingquarters.
So,withthat,weareI'dbeveryhappyforustorespondtoanyquestionsthatyouhaveoranyclarificationsthatyoumayseek.
QuestionsAndAnswers
Operator
Thankyouverymuch,sir.Wewillnotbeginthequestionandanswersession.(OperatorInstructions)Wearegoingtotakeourfirst
questionfromthelineofPriyaRohirafromAxisCapital.Pleasegoahead.
PriyaRohira,Analyst
Yeah.Hi,goodeveningtothemanagementteam,andcongratulationsongoodsetofnumbers.
Yeah,goodevening,Priya.
PriyaRohira,Analyst
WishyouallhappyNewYearaswell.
Thankyou.Sametoyou.
Thankyou.Sametoyou.
PriyaRohira,Analyst
Yeah. I have couple of questions. One, relate first on the overall revenue visibility which we see from the ITeS and systems
integration business. The second thing is, if you could just walk us through the subcontracting expenses increase on the
overseasemployees.Howdoweseethisgoingdownwithoffshoringcominginoverthenextfewquarters?
Priya, firstly on this segmentation, if we look at our systems integration, revenue grew 12% quarteronquarter and ITeS grew 4%
quarteronquarterinthisquarter.Andifwelookatfortheninemonthsperiod,theyarethetwobusinesssegmentswherebulkof
thegrowthhascome.SIhasgrown43%onaninemonthbasisandITeShasgrown49%onaninemonthbasis.It'sverymuchinline
with whatever we had discussed over the previous Investor Call also. These are the two business segments which are more
profitableintermsofourbusinessportfolio.Andputtogether,theyhavegoneforalmost80%ofourbusiness.
And if you lookatmarginsalsoin this quarter, allthe marginimprovement also hascome out of these two businesssegments,
whereSImarginimprovedfrom19%to21%;andITenabledservicesimprovedfrom27%to31%.
So I think in terms of business portfolio, it's very much in line with our company's strategy to increase our business share of
moreprofitablebusinesses.
Thenyoutalkofsubcontractingcost.Wehadtoldthattheshiftfromonsitetooffshoremaytakeplaceonlyfrom,say,firstquarter
of next financial year. So far as current quarter, last quarter, that is quarter three has gone. We have not seen their shift taking
place,soIthinktheyhavecontinuedthewayweweredoinginthepreviousquarter.Sowhichisthereasonyouarenotabletosee
anysignificantchangeinthepatternofsubcontracting.
Butifyoulookatsubcontractingandemployeecostputtogether,itcontinuestoformapattern.Andwearestillabletoimprove
our margins, I mean, though we may, I mean, we had improved our margins by 20 basis point, but I think given the current
environmentIthinkprotectingandimprovingmarginwhilemaintainingthegrowth,Ithink,isveryimportant.
PriyaRohira,Analyst
Doyouthinkthiswouldmeanthatweareyetat24%,25%ofoffshoreshareinourinternationalbusiness?And
Yeah,yeah,absolutely.Absolutely,infact,inthisquarter,it'sabout23%.
PriyaRohira,Analyst
Okay. Sure. And just one more thing on the visibility, when you're saying ITeS and the system integration business, the new client
wins,I'msurethiswouldhavebeenamaterialcontribution.Ifyoucouldjustexplainsomequalitative?
ActuallymostofthenewclientwinisreflectinginSIbusinesssegment.
PriyaRohira,Analyst
Okay.
In ITeS, we have got wins but some of the contacts would have ended also. Now this is why this reflected in 4% growth in
ITenabled services. Last portion of ITeS, there are two major contributors to ITenabled services business. One, the listing work
thatweareexecutinginAmerica,whichisstillsubstantial.AndthePassportProject,whichhasgonethrougharampupphasefor
thelastthree,fourquarters,whichcontributesignificantlytoITenabledservicesbusiness.
PriyaRohira,Analyst
AndwhereareweintermsofPassportProjectrightnow?Imean,intermsofFY'14?
Passport project is now fully rolled out. It's in the stable phase. So we are not seeing and initiate further ramp up in passport,
because (inaudible) all the 77 passport offices have been rolled out. Now, the ramp up will happen based on volume growth,
meansifmorenumberofpassportsarereceived,tobeissuedintheoffices,maybeyouhavetodeploymorepeopleormaybeyou
havetoexpand.Unlessthathappens,Ithink,forsometimewearenotbankingonpassportprojectdelivergrowthinthisbusiness.
PriyaRohira,Analyst
Sure.Andlasttimeyousharedthataround6.6crorespassportarethepotentialtobeissued,andwewereataround1.6,ifIcould
haveanupdateoverthere?
No,whatwesaidisthatthegovernmenttheysaythatthereare6.5crorepassportand1.6crorepassportsareissuedeveryyear
or they renewed every year. And what we were expecting is that, as people start getting enough of user experience and they find
that,gettingpassportisfarmorepleasantexperiencenow,weexpectmoreandmorepeopletocomeintothepassportkendrasand
getpassportissued.Andthisiswherethevolumegrowthweexpectwilltakeplace.
Ithinkit'stooearlytoreallycallwhatkindofgrowthwillhappen,butallofusaresurethatthegrowthwillreflect.
PriyaRohira,Analyst
Sure.Thesecondquestionwas,nocontributionhasyetfromUID,right,it'sfrom?
No, no, no, no, no contribution from UID. And, we don't have any clear visibility on then and how this contribution is going to
arise.
PriyaRohira,Analyst
Sure.AndwhatwillbetheshareofTCSinthecurrentquarter?
Thisquarteris58%.
PriyaRohira,Analyst
And,ifyoucould,alsoshareontheCapExfront,becausearewealittlepushedbackintermsofFY,Imean,movingmoretowards
FY'14CapExor?
Yeah,you'reright.Ifyoulookback,ourCapExthisquarterhasbeen22crores,so,onacumulativebasisabout67crores.So,it's
slightlybehindschedule,sosomeoftheCapExwillgetpostponedtothenextfinancialyear.
PriyaRohira,Analyst
ForFY'13andFY'14,woulditbepossibleforyoutoshareyour?
Wearestillintheplanningstage,soalltheprojectsaregoingtobereviewed.
PriyaRohira,Analyst
Okay.
YouknowthatSEZproject,whichisamajorproject,youcansaythatprojectisonakindofatimelimit.Wehavetocompletethe
project in that between the June to September 2014. So I think there could be some bunching of CapEx taking place later on.
Overalltimeframetoconcludetheprojecthasnotbeenextended.
PriyaRohira,Analyst
Okay.
SoIsay,stillifyousaynext18months,thetotalCapExwilltakeplace.
PriyaRohira,Analyst
Okay.Sure.Andforthetaxassumption,whatwouldbethestatforFY'14?
Actually,ifyoulookatfirstninemonthstaxis25.8%,butthisquarterithasbeen23.7%.Sothisislaunchingustoaverycomfortable
tax position for the next financial year, so if you drop off fiscal 2014, I think we are very much on track of a target to reduce it to
around22%.
PriyaRohira,Analyst
Okay.
Andaswesaid,byfiscal2015,weshouldseeitcomingbelow20%also.
PriyaRohira,Analyst
Okay.
Operator
Doyouhavesomemorequestions,ma'am?
PriyaRohira,Analyst
Justalastquestion,maybeI'llthencomeforrepeat.Isthat11,000oddpeople,11022,11024orhowmucharesubcontractors?
Ourcontractemployeesare6,481.
PriyaRohira,Analyst
Okay.
Andregularare4,743.
PriyaRohira,Analyst
Sure.Thankyousomuchandwishyouallthebest.
Thanks,Priya.
Operator
Thankyou.WearegoingtotakeournextquestionfromthelineofVinayKulkarnifromHDFCMutualFund.Pleasegoahead.
VinayKulkarni,Analyst
Sir,congratulationsongoodsetofnumbers.
Thankyou,Vinay.
AndwishyouallHappyNewYear.
HappyNewYeartoyoutoo,Vinay.
HappyNewYear.
Thankyou,thankyou,sir.IhaveaquestionregardingSEZ.Quarterlyrevenueseemtohavedippedslightly.Canyoupleaseexplain
that?
No,no,basicallyyouknowthat,basedonaccountingstandardnowonunitequalizationaccounting.
Okay.
So what happen, then some additional facility gets commissioned, so that equalization amount is computed from the original
period.
Okay.
So,it'sabunchingofthatequalizationamountgettingbooked.Inthenexttwoyears,youbookonlyforthatperiod.So,it'sbasically
becauseofthataccountingissue.
Okay.Andmarginsalsoseemtohavegonedown.
No,reallyit'sbasicallydepreciationthatgoesin,becausemarginswentdown,becauseinthelastquarterwehadbunchingof
revenuetakingplacethere,thisquarteritwasnotthere.
Okay,okay.
So,thereisnootherelementofcostthere.
Okay. Sir,thenI have moregeneral questiononthese two three focusareas, big data, analytics,cloud. Couldyoujust elaborate
more on what sort of internal work you are doing, what sort of projects you are working on and as of Q3 what percentage of
revenuehascomefromthesethreeorfourfocusareas?
Yeah. In the area of cloud, mobility, big data and analytics and intelligent enterprise systems, we are very focused on two
segmentsofthemarketplace.OneistheproductandsolutionsthatwehaveasapartofourSIsolution.Andsowhateverarethe
cloudrelatedextensionsorthemobilityrelatedextensions,apprelated,softwarerelatedtoourproductslikeinsuranceandsoon
orthesurveillancesecuritysystemsthatneedtobegetintegratedorthebigdataanalytics,thesearethisisformingonepartof
us,innovationstrategy.AndthesecondpartisofferingservicesonOEMrelatedtoolsandtechnologies,whicharebeingusedfor
cloudmigrationormobilityintegrationorbigdataandanalytics.
For example, the vendors like EMC and Oracle and others have come up with their own extensions for integration into core
platform, which has built using their products. So we are providing services, SI services on these, getting the expertise on the
particularplatformandmakingsurethatwecanintegrateitintothesolutionsandservicesthatarerequired.
ThethirdpartiscreatingnewsolutionsfortheSMEmarket,thesmallandmediumenterprises,whichwillbecloudrelatedsolutions.
Forexample,GenesiswearecreatingaversionofGenesisforGenesiscloudandGenesismobileandGenesisanalytics,whichwillbe
fortheSMEmarket.So,thisisathreeprongedstrategythatwearehaving.Weputitall,wehaveputitallintheCMC3.0initiative,
whichisformingthecoreframeworkunderwhichwewillbedealingwithemergingtechnologiesandemergingtrends.
IntermsofsuccesseswehadearlysuccessesinbigdataanalyticsintheUS,butitisstillmostoftheimplementationsarestillvery
new,sothemarketplaceisyettoabsorb.Thoughyouhavesmartphonesandyouhaveapps,whichareconsumerrelatedappsand
gamesrelatedapps,therearestillnotmanyappswhichhavegotintegratedintothecorporatespace.Sothoseareareaswhichwe
areworkingonandwearesurethatduringthecomingyearwearegoingtoseealotmoreofthat.
Operator
Mr. Kulkarni, do youhavesome morequestions? (Operator Instructions)We aregoing totake thenext question from theline of
SanjeevHotafromSharekhan.Pleasegoahead.
SanjeevHota,Analyst
Yeah.Thanksfortheopportunityandcongratstothemanagementteamforagreatsetofnumbers,andHappyNewYeartoyou
all.MyfirstquestionisonthesegmentalstatushavebeenprovidedforCS,SI,andITeS?
Sorry,sorry,comeagain.Whatinformationyouwantaboutsegments?
SanjeevHota,Analyst
ForthedomesticandinternationalsplitbetweenCS,SIandITeS?
Yeah,youcannotedown.OurtotalCSrevenue78crores,outofwhich66croreisdomesticand12croreisinternational.InSI,
wehavegot316crores,domesticis42outofthat,theremainingisallinternational.ITenabledservices'totalrevenue75crores,
domesticis33crores,remainingisinternational;andE&Tisallinternational.
SanjeevHota,Analyst
And my question is on the offshore shift,thatis, you're seeing that is going to happenin the firstquarter of FY '14. Sointhe last
severalquarters,thisisthelowestoffshorerevenuewehaveseeninthisquarter,sowhatarethereasonforthatandwhatkindof
upsidewecanseeinthenextcoupleofquartersintheoffshoreshift?
Infact,Iwouldnotliketocallitlikelowestoffshore.Wewillsaythatalotofyou'renotseeinganinternationalbusiness in
thisquarterhasgrownsignificantly.
SanjeevHota,Analyst
Allright.
So like, it give 11%. And the significant portion of that growth came in the onsite portion. Thereby on a percentage basis you
mustseesomedeclineinoffshorecomponent.
Wehavetoldthatweareexpectedtoseethiscurrenttrendoframpupononsiteforatleastoneortwomorequarters,
U.S.electionresultswerejustoutandweareyettoseebestonvisaresume.Andwealsohadsharedwithyouthatbecauseofthe
currentvisaresumeisonsitehasgoneup,itwasnotapartofouroriginalplan.Sothisiswhatwewereexpectedtoseeinthe
endofthisfinancialyear.Andweexpecttohaveadifferenttrendfromnextfinancialyear.Thisiswhatourexpectationis,butwe
stillhavetoplaybythetimetoseehowthethingsunfold.
SanjeevHota,Analyst
AndifyoucouldcommentandgivesomecolorontheITbudgetsandwhatyourclientwasgettingsomecolorsfromyourclient?
Andjustfranklyspeaking,we'venotseenanymajorchallengeintermsofITspendsofpowerplantbase.Ifyoulookatbusinesses,
weareintotwokindofbusinesseslike;oneis,wherewehavegotlongstandingrelationshipwiththeclient,aswehadsaidearlier,
likeTRWinAmericaandallthat.
So with those clients, typically we engage with them at their initial R&D budgeting stage itself, so we get fair amount of clarity
aboutwhatkindofexpenditureshaveplanned.Andsinceweareintothenichewehave,whichiscoreR&Dforthem,wehavenot
seenaproblemwithanyofthoseplans.
Theotherbusinesssegmentthatwehavegot,whichisontheproject,byprojectbasis.SowehavelotofprojectsinIndiaandall
that. So there, I mean, we keep hearing a lot about slow down and delay in decision making and all that. But, maybe it has not
significantlyimpactedusbecausecontributionofthesebusinessesin ouroverallbusinesshascomedownoveraperiodoftime.
Likelastquarter,wegotonly32%businessfromIndiageography.
So,wehavegotsufficientbusinessopportunitiesavailableheretoinsulateusfromthetalksofslowdown.So,asofnowIdon'tsee
anymajorworryonaccountofclients,theyjustreducingtheirbudgetsorslowingdowntheirbusiness,theirITspends.
SanjeevHota,Analyst
Andthelastquestionisontheproductandsolution,haveyouseenanykindofbigrevenuejumpinthesequentialbasis?
We'resorry,comeagain,Ididn'thearyourquestionproperly.
SanjeevHota,Analyst
Thatquestionofproductandsolution,Ididn'tseeanybigjumpintherevenuecontributioncomingfromproductandsolutionthis
quarter.
Yeah, this quarter we saw because we were able to close a few insurance transactions. Because of which we saw some jump in
productandsolutionthisquarter.
SanjeevHota,Analyst
So,nowitcontributesmorethan20%of
No,no,no,wearestillabout18,19%.
SanjeevHota,Analyst
Okay.(inaudible)contributemorethan20%.
That'sright,that'sright,that'sright.
SanjeevHota,Analyst
Okay.Thanksalot.That'sallfrommyside,andallthebest.
Thankyou.
Operator
Thankyou.WearegoingtotakethenextquestionfromthelineofPankajMurakafromAxisMutualFund.Pleasegoahead.
PankajMuraka,Analyst
Goodevening,sir.
Yes,goodevening,Pankaj.
Sir, if you could, share some more light in terms of on some of the key dealings we've had in the quarter and also on the traction
we'reseeingontheinfrastructuremanagementside.
Yeah.Wehave,asyouareaware,added26clientsduringthequarter.Andclientadditionhasbeeninalmostallthesegmentsof
our business. Embedded and real time systems we added for clients in the international market. We have added infrastructure
servicescustomersintheIndianmarket.AndwehaveaddedSIsolutionsinallthemarketsinboth,Indiaaswellasinternational
andtheemerginggeographies.
We have been also able to grow our ITeS business in the domestic and international markets. So overall the growth has been
uniform.Educationandtraininghasbeenalittlebitofaplateauduringthisquarter,butwehaveinitiatedsomenewinitiativeson
vocational training, which we expect will gain momentum during this quarter and the next quarter. We have also been able to
establish formal relationship with some expert partners in vocational training, particularly Unitec from New Zealand. And we
expectthatthiswillhaveagoodimpactonoureducationandtrainingservicerevenues.
Thankyou.
Thankyouverymuch.
Operator
Thankyou.We'regoingtotakeournextquestionfromthelineofH.R.GalafromQuestInvestment.Pleasegohead.
H.R.Gala,Analyst
HelloMr.RamananandJ.K.,goodevening.
Goodevening,Mr.Gala.
H.R.Gala,Analyst
Goodevening,happyNewYear,andcongratsforareallygoodsetofnumbers.
Thankyou.
H.R.Gala,Analyst
Yeah.Sir,justonebookkeepingquestion.Canyouguideusthroughhowmuchhasbeentheforexgain/losseffectinthisQ3visavis
Q1?
InQ3,wehadanexchangegainof3.4crores.
H.R.Gala,Analyst
Okay.
Lastquarter,wehadanexchangelossof1.66crores.
H.R.Gala,Analyst
1.66crores.Okay,soinninemonths,whatistheposition?
Inninemonthcumulative,wehavegotgainofabout1.3crores.
H.R.Gala,Analyst
That'sall.Thiswillincludethetranslationaswellasthetransactional,bothtogether?
That'sright,that'sright.
H.R.Gala,Analyst
Okay.So1.3crorewasthegaininninemonths.
Yeah.
H.R.Gala,Analyst
Visavishowmuchwasgainorlossinthecorrespondingninemonths?
Holdon,I'lljusttellyou.
H.R.Gala,Analyst
Yeah,sure.
Lastyear,wehadaboutINR4croreofloss.
H.R.Gala,Analyst
Thatwasloss,sothisisagoodpositiveswinghastakenplaceinthisyear.
Yes.
H.R.Gala,Analyst
Okay.Anotherquestionis,yousaidthecashandcashequivalentswehadissomethingaround218crore,thatIhopeincludes113
croreofmutualfundinvestments.
Thatincludes,yes.
H.R.Gala,Analyst
Thatincludes,okay.
So,ourinvestmentisallliquidinvestment.
H.R.Gala,Analyst
Yeah,that'sright.AndhowmuchwillbethetotalCapExforFY2013,youdidn'tgivethenumber?Yousaid67crorehasbeenspent
sofar.
Yeah.Actuallyouroriginalplanfortheyearwas228crores.
H.R.Gala,Analyst
Okay.
ButIguesstherearefewprojectswhichareabitslowintermsofpushback.
H.R.Gala,Analyst
Right.
Andthat'swhatPriyawasaskinginitially.
H.R.Gala,Analyst
Yeah,yeah,that'sright.Yeah.
Overall,wedon'tseetheprojectgettingdelayed,butsomeoftheexpensewouldhavegotpushedfromthisyeartonextfinancial
year.
H.R.Gala,Analyst
Okay.
So, I guess, like 67 crore has been spent for first nine months. So even if we take, say, 50 crore, 60 crore, I think the full year
CapExcouldbeanywhereabout350croresorso.
H.R.Gala,Analyst
130crores?
Yeah,roughlyyes.
H.R.Gala,Analyst
Okay.AndthebalancewillbeinthenextyearorsomethingmorewillcomeinFY'14?
Actually,mostoftheplan,mostoftheshortfallofCapExthisyearwillgetthroughnextyear.
H.R.Gala,Analyst
Okay.
Soweareasofnow,wearenotplanningtopushitbeyondthenextfinancialyear.
H.R.Gala,Analyst
Sonextyearwillberoughlyhowmuch?
Nextyear,ourplaninitiallyabout150crores.
H.R.Gala,Analyst
Okay.
Youcansaythat,intheircasenextyearwillbecomesomethinglike225crores,230crores,240crores.
H.R.Gala,Analyst
Okay.
Westillareworkingonthat,butballparkisthis.
H.R.Gala,Analyst
That'sfine.ThatIunderstand.Andthetaxratethisyearwillbehowmuch?Yousaidthatnextyearwearelookingforwardto22%.In
FY'13,howmuchdowelookforwardto?
Firstninemonths,taxrateis25.8%.
H.R.Gala,Analyst
Yeah.
Iguessbythetimeweclosetheyearitshouldbearound24.5%to25%.
H.R.Gala,Analyst
Okay.Okay.
Nextyear,Isaidthatwearewellsetto
H.R.Gala,Analyst
22%.
Goaround22%.
H.R.Gala,Analyst
Okay,fine.Now,onequestionforMr.Ramanan.Sir,anycompanythatwestudyinthistechnologyfield,everybodyistalkingabout
the same Big Data, mobility, applications, analytics, cloud and all that, now you explained three areas in which CMC is going to
concentrate.ButbasicallyIjustwantedtounderstandhowdowedifferentiatefromtheothercompaniesintermsofourofferings,
sothatwetrytogainmorebusinessoutofthesenewinitiatives?
Yeah.Thedifferentiationcomesinreallythefocusarea.
H.R.Gala,Analyst
Okay.
Becausethetechnology,theunderlyingtechnologyisstillthesame.Soourapproachisthefollowing:numberone,allareexisting
products and solutions that have been developed as a result of that, we are making sure that the cloud mobility and Big Data
Analyticsbecomesanintegralpartofanextendedsolution.
H.R.Gala,Analyst
Okay.
Thesecond part is,thatproactivelyour products. We aredoing the necessaryinnovationto ensure that they willkeep aheadof
thetechnologyorkeepaheadofthelearningcurve,otherwiseourproductswillbecomeobsolete.
H.R.Gala,Analyst
That'scorrect.
Sooneisfromourcustomerpointofviewandoneisfromourownproductssustenancepointofview.
H.R.Gala,Analyst
That'sright.
The third area that the other two areas in fact are today you have SI becoming an important element in the cloud mobility
andBigDataAnalyticsimplementation
H.R.Gala,Analyst
Okay.
because letus say, I mean, you see all the OEM vendors, whether it is IBM or whether it is Oracle or SAP, they're all coming up
withtheirownofferings.
H.R.Gala,Analyst
Yeah.
Butthoseofferingshavetointegratewiththecoreplatformwhichhasbeendone,sotheseareallcomingasadditionsandaddons.
H.R.Gala,Analyst
Okay.
ThatisanSIopportunityforus
H.R.Gala,Analyst
Iunderstand.
inaddressingwherevertheseimplementationsarethere.
H.R.Gala,Analyst
Okay.
Sothatisthesecondpart.AndthirdpartiscomingupwithsolutionsfortheSMEsector,whichagain,weareagainfocusedonour
productsasapossibleofferingfortheSMEsectorusingcloudormobilityoranalytics.
H.R.Gala,Analyst
Okay.
As an example, we have Genesis, which is for the larger enterprise, but now there a lot of small insurance companies and broker
companieswhicharealsocomingfortheinsurancesegment.
H.R.Gala,Analyst
Yeah.
Sowearelookingatofferingacloudbasedserviceforthem.
H.R.Gala,Analyst
Okay.
Sothisisathreeprongedstrategythatwearedoing.
H.R.Gala,Analyst
Okay.Fine.Thatexplains.Thankyouverymuchandwishyouallthebest.
Thankyou.
Operator
Thankyou.We'regoingtotakeourquestionfromthelineofNGNPuranikfromENAMSecurities.Pleasegoahead.
NGNPuranik,Analyst
Hi,RamananandJ.K.
Hi.
Hi,Puranik.
NGNPuranik,Analyst
You'vedoneanothergreatquarter.
Thankyouverymuch,Puranik.
Thankyou,Puranik.HappyNewYeartoyou.
NGNPuranik,Analyst
HappyNewYear,HappyNewYear.SoI'mstillwaitingforyourfiltercoffee?
Whydon'tyoucomedowntooffice.
NGNPuranik,Analyst
No,no,I'llcertainlycomedown.Interestingcoupleofthings.Coupleofyourbusinesseshavebeendoingverygood.Iwaslookingat
thelongtermapproachtodevelopingcustomerservicesbusiness.Whatareyourthoughtsintermsofbringingtheserviceselement.
Today everyone, like you talked about big data analytics and all that, is there any other the infrastructure IMS have been talking
aboutoranyotherwayyoucangetmoreservicesintothehardware,tolookthehardwaresystemintegrationandgetthatbusiness
moresensible,becausethemarginhereisprettyvolatile?
Yeah.Ithinkontheinfrastructureside,Puranik,weareseeingactuallyaverygoodopportunityinintegratingahardwarerelated
it's not hardware, it's a hardwarefirmware combination related offerings by OEMs in the infrastructure space. For example,
todayyouhaveEMC,whichisofferingcloudbasedvirtualstorage.Andsovirtualstorageisgoingtobeabigthinginthefuture,
becauseithelpsinvirtualizationofyourhardware.
NGNPuranik,Analyst
Absolutely.
Andinoptimizingit,andsecondlymakingitalsoveryaffordable.Sothatisatheyhavecomeupwithofferingsandproductsand
wearealreadyhaveformedapartnershipwiththemtoseehowwecanaddressthat.Similarly
NGNPuranik,Analyst
What exactly youwill be doing? What value added solution you buildofthat? Is thereanIP that youhave on that oryouhave
connectorthatyouwillconnectthisto
No, that will be an IP, which we are looking at creating from a management configuration management, cloud
management.Sothiswillsitontopofthatparticularsolution.
NGNPuranik,Analyst
Howwillyoumakemoney?Whatwillbedifficultdealsizeandhowwillyoumakemoneyinthis?
Itcouldbesee,oneisthemigrationitselfcouldbeafixedpriceprojectandsoon,buttheotheris,ifyouofferasolutionontopof
it, then you can have a payperuse. And that is the transformative model that we want to go into. So, instead of going into just
manpowerbasedservices,becausecloudormobilebasedserviceoffersyoutheabilitytohavepayperuse.
NGNPuranik,Analyst
Oh,Isee.Thisisperstoragesolutionyougetpaid,likethatorhowdoesithappen?
Right,itcouldbethetransactionthatyouareconductingonit.
NGNPuranik,Analyst
Isee.
Thisisnotbe
NGNPuranik,Analyst
margininthisor
becausethatis,thatnormallythevendoritselfwillprovidethat.Sowhatwehavedotoisprovideasolutionontopofit.SoifI
have, for example, let's say we have a depository product, DpSecure. If I am able to implement this DpSecure over a virtualized
network, then I can have people paying per use, per transaction for the depository participant. We're already doing some IP
developmentinthat.
NGNPuranik,Analyst
Okay.Soisitaplatformapproachorisitjustasolutionapproachoracombination?
It'sacombination.
NGNPuranik,Analyst
Combination.
Yeah. Because it cannot be just a solution, it has to operate on multiple platform. So you'll have to have you will have to work
with, sometimes you know, you have organizations, which have a combination of hardware platforms. So it will have to work on
that.
NGNPuranik,Analyst
So,we'llhaveajointgotomarketinthis?
Yeah.Correct.
NGNPuranik,Analyst
Soyouhaveseparateteamdedicatedforthis?
Yes.Wehaveaninnovationteam,whichwehaveseparatelysetup,andthatisonwecallitbusinessandtechnologyinnovation
team.
NGNPuranik,Analyst
Right.Youweresayingsomethingaboutinfrastructure.
Yeah.So,youhaveoneportion,justtheinfrastructuremigration,infrastructuremodernizationandthatisaservicewhichaccording
to me that is going to happen. You have, let us say dedicated enterprise customers who would want to go for a cloudbased data
center, would like to have their own data center. But they might say, if you want to have move into a cloudbased data center,
becausewedon'twanttomaintainthisandrunitandallofthat.Sothatisamigrationtoacloudbaseddatacenter,whichwould
callforawholelotofinfrastructuremanagementservicesassociatedwiththat.
NGNPuranik,Analyst
Okay.Youdothecloudenabling,youwillbuildyourowntoolsandmethodologythere?
Correct.
NGNPuranik,Analyst
Right.Andso,then,J.K.,ifyoudoallthishowwillthemarginprofilechangeforthisCSbusiness?
Actually,weareyettodothecomparisonmodelingofthis.Buthonestlyspeaking,marginshouldimprovefromhere,becausethese
newmodelsprovideusgreatflexibilityintermsofleveragingtheinfrastructureandalsocreatingvariabilityintherevenue.And of
course,weprovidekindofaplatformbasedoffering.Aswegrowinvolume,marginswillimprovedisproportionately.
NGNPuranik,Analyst
No,no,whatisyourdefinitionofimprovement?Isitdoublethemarginorwhat?
Look typically what happens, like, in India services. In India, the services margin are close to about 18%, 20%. So when we say
improvedmargins,wearetalkingaboutmarginimprovementoverthecurrentmarginstructureandvolumestructure.
NGNPuranik,Analyst
You'resayingattheoperatinglevelorthegrosslevel?
Yeah,atthedeallevel.
NGNPuranik,Analyst
Thedeallevel?
Yes.
So let me answer that question a little more differently. What we're looking for in the CS services, today we had 90%, 95% of our
businesscominginthedomesticmarket.Wewanttotakeittoa6040DIboxthinginitially.
NGNPuranik,Analyst
Right.
60%fromdomesticmarket,40%frominternationalmarket.Justlikewehadstartedoffintheotherareas.
NGNPuranik,Analyst
Sothatyoudo,gotomarketwithTCS?
SowewilldogotomarketwithTCS.They'llalsodogotomarketwithvendors.
NGNPuranik,Analyst
Vendors?
Becauseinthisthevendorsareopentonewplayersinthismarket.
NGNPuranik,Analyst
Correct.
Andinfact,theyarelookingforwardtosomebodywhoalsohavethesolution.
NGNPuranik,Analyst
Oh,Isee.
Becausethesuccessoftheirsaleisbaseduponasolutionridingonit.
NGNPuranik,Analyst
Absolutely.Correct.
Soifweimproveourinternationalbusiness,clearlytherewillbeahugeupsideinthemargins.
NGNPuranik,Analyst
Youalreadystartedtheprocessthere?
Yeah.Yes.
NGNPuranik,Analyst
Sointeresting.Theotherthingisaboutyoursystemintegrationbusiness,howmuchofthatisembeddedandothers?
Ourtotalsystemsintegrationisabove65%,butitisabout19%outofthis.
NGNPuranik,Analyst
19%isembedded,andthemarginprofileforboth?
Embedded is slightly better as compared to our our average margin is 21%. Embedded is slightly better than this, because
embeddedhasgotsignificantoffshorecomponent,becauseofthatmarginsarebetter.
NGNPuranik,Analyst
Okay.TherearelotofIPsinthatorjustthe?
ActuallywecleartheIPfortheclients,somostlyIPisrestingwiththeclients.
NGNPuranik,Analyst
Okay.Andmostofthesebusinesses,theyare,what,fixedpriceortimeandmaterial?
Thecombination.
NGNPuranik,Analyst
Combination.
Yeah.Actually,it'sbasicallybudgetbased,youcansay.
NGNPuranik,Analyst
Budget based. And this ITenabled services, what is the kind of work you do? Is it lot more digitizing kind of work or better
valueaddedwork,whatexactlyyoudoinITenabled?
InITenabledservicestherearethreeorfoursegmentsthatwework.Oneisdigitizationservices,whichcallsfordigitizationofnot
onlypaper,butalsootherfeedthatanorganizationreceivesintermsofinformation.Thesecondpartisworkflowmanagement.So
wetakethisdigitizeddataandthenwedoworkflowmanagementandwe,becauseithastobeintegratedintovarioussystems,for
example,ifyouhaveHRrelateddata,itshouldgetroutedtotheHRsystem.IfitisSAPrelated,orderrelateddata,ithastogothere
andsoonandsoforth.Ifitiscustomercomplaint,ithastogototheCRM,customercomplaintmanagementsystemandsoon.
NGNPuranik,Analyst
Correct.
Thethirdpartisanalytics,whichiswhatwehavealreadyenteredinto,becausewearecollectingalotofinformation,sowhatyou
dowiththat.Andhowdoyouuseanalyticsorknowledgeprocessingtoextractvitalinformationormeaningfulinformationfromall
that information that you're collecting and then pass it on to the decision support systems. So that is a higher end value adding
service,whichisquitewhichhasverygoodmargins.
NGNPuranik,Analyst
Andwhat'sthemixofrevenueinthis,J.K.?
InITenabledservices?
NGNPuranik,Analyst
Digitization,workflowandanalytics?
Actuallyalmostalltheinternationalbusinessthatwehavegotisondigitizationandanalytics.
NGNPuranik,Analyst
Andanalytics,sointeresting.
AndalotofIndianbusinessisonworkflowmanagement.
Yeah.
NGNPuranik,Analyst
Isee.Analytics,withinthat,theanalyticswouldbe,what,50%or70%30%.
Wedon'thavethatbreakdownasofnow.
NGNPuranik,Analyst
Isee.
Iwouldsayanythingthatwearedoingintheinternationalmarkettodayisacombinationofdigitizationandanalytics.
NGNPuranik,Analyst
Isee.Combinationofdigitizationandanalytics.
Yeah, becausepuredigitizationwill not bring much value tous inthe internationalmarket.Whereasin India, we do digitization of
workflowmanagement,forexampletheMCAprojectisapassportsevaproject,thereishugeamountofworkflowmanagementin
that.
NGNPuranik,Analyst
Workflowmanagement.Andyourloveforeducationbusinesscontinues?
Loveforitcontinues.Theresultshopefullywillcome(inaudible).
NGNPuranik,Analyst
Itwillcontinuetostaylikethatorthegrowthalsowillcome.
No,no,itwillcome,growthwillcome.
NGNPuranik,Analyst
Itwillcome.Isee.Andtheotherthing,the
Operator
Puranik, I amextremely sorry to interrupt you, sir. If you have few more questions, I request you, if you can come through a
followup.
NGNPuranik,Analyst
Okay.Ihaveonelastquestion.Iamnotgoingtocomebackagain.ThisisontheSEZinvestment,200youhavesomesignificant
investmentinSEZ.Sothelongtermstrategyisgoingtostaylikethatorthe?Becausethatdoesn'tgetonanythroughonyour
returninvestment.
Yeah,Puranik,SEZisaproject.It'snotlikethatwearegoingtocontinuetomakeinvestments.Itisoneprojectthatwehavedelta,
whichisgoingtocostusabout445crore.Andintermsofcostingoftheproject,wearestillfirmofthis,youknow,variationtaking
place.
NGNPuranik,Analyst
Butintermsof
It'salongterminvestment.
NGNPuranik,Analyst
Returnonwhatkindofcapitalreturnsitwillgenerate?
It will generate huge amount of capital return. I'll tell you, this project cannot be solely analyzed on capital returns. It's like
monetizing an asset, which, I mean, which otherwise either any value, there was a risk ascertained with this. Second thing is, for
thecompany,forCMCitselfaswegrowinternationalbusinessandinordertoavailtaxadvantages,werequiretohaveanSEZ,and
SEZhastohaveaminimumsize.Soit'sagreatopportunitythere.TCSalsosaidthatweguarantyyourutilization. Soitcannotbe
measureonlywithregardtothecurrentreturnthatwearegetting.
NGNPuranik,Analyst
Butyouwillalsobesellingsomeassets.
Wearenotgoingtosellassets.
NGNPuranik,Analyst
Notgoingtosellany.But,howwillyougetyourgreaterreturnsthen?
Actually, overall when the project is fully commissioned and everything is on, one is that we are going to have about 2,500 of our
ownseat,whichisgoingtodeliveruscriticalinternationalrevenueathighermargin,pluswhateverwegetfromTCS.Overallreturn
onthisprojectisnotgoingtobelessthan25%.
NGNPuranik,Analyst
Oh,Isee.
Yeah.
NGNPuranik,Analyst
So,wonderful.VeryhappyNewYeah,andallthebesttoyouguys.
Thankyouverymuch.
Operator
Thankyou.WearegoingtotakeournextquestionfromthelineofUrmilShah,fromKimEngSecurities.Pleasegoahead.
UrmilShah,Analyst
Yeah.Hi,Sir.Thanks fortakingmyquestion.Lastquarter,wediscussedaboutembeddedsoftwaresolutions forelectronicsinthe
automotivesegmentsandresigninglongtermdealswithautomotivecompaniesabroad.Anyupdateonthesame?
Yeah. We continue to see that as a good growth market for CMC. We have increased our revenues in that space from existing
customersandwehaveacquiredafewnewcustomerswhoarefromwhomrevenueswillstartflowing,offshorerevenueswill
startflowingduringthenextquarterormaybethequarterafter.
UrmilShah,Analyst
Sure.Soofthefourclientsaddedinembeddedsoftware,howmanywouldbefromtheautosegment?
We don't have a very clear breakup on that, but I would say at least 30% of our embedded system revenues would come from
automotivesegment.
Fromourexistingclient,ifyousee,thereismuchlargerportion.Becauseourlargestclientisfromautomotivesegmentonly.
UrmilShah,Analyst
Sure,sure,sure.Andjustweknowprebreakupofthe20clientsacquiredinIndiaacrossthesectors,so?
Yeah. Actually we have got a wide variety of clients that we have got, which includes eGovernance, we have got
transportation,wehavegotinfrastructure,wehavegotfinancialservicesandinsurance.
UrmilShah,Analyst
Okay.Sosimilarspreadasinpreviousquarters?
Yeah,that'sright.
UrmilShah,Analyst
Sure.Thenlast,abitofbookkeepingquestion.TheSG&Acosthasdeclinedbyabout9croresthisquarter?
No, no, no, no, no, no, no. I think, you have to see if you look at segmentation from where you're driving is because of the
changingotherincome.
UrmilShah,Analyst
Okay.Sowhatisthechange?
Infact,SG&Acosthasslightlygoneupthisquarter,ifyoujusthavealookatitactually;about1crore,1.5croreincreasesthere.
UrmilShah,Analyst
Okay.Thankyou.
Thankyou.
Operator
Thankyou.We'regoingtotakeournextquestionfromthelineofBharatShethfromQuestInvestment.Pleasegoahead.
BharatSheth,Analyst
Hi.GoodeveningandcongratulationMr.RamananandJ.K.
Thanks.Thankyou,Bharat.
Thankyou.
Thankyou.
BharatSheth,Analyst
Just I mean taking it, I mean, in this embedded side, which are the sector that we are targeting? That is one. And second,
geographicalconcernthatwewerelookingfor,Imean,thisEMEAside.Sojustcanyouhighlightthat?
Yeah. The sectors within the embedded system that we are targeting is automotive, transportation, office automation,
communication, electronics and industrial systems. So these are the areas that we are targeting and we have customers in all of
thesesegments.
BharatSheth,Analyst
Arewelookingforconsumerelectronicsalso?
No,notsomuch.Mostofourconsumerelectronics,wedon'tseetoomuchofanopportunityforCMCrightnowinthat.
BharatSheth,Analyst
Okay.AndImean,geographicallyImean?
Though we in the hightech segment, we service embedded system customers who service consumer electronics. Because
typically in today's consumer electronics, you have lot of parts which are manufactured by different hightech vendors and then
they'reallintegrated.
BharatSheth,Analyst
Okay.Andsir,now,recentlyinthistelecompolicy,whichwasannouncedby,Imean,wheregovernmentisputtingalotofpressure
onimportingthischeapChina[ph]Imean,manufactureinIndia,sohowthatwilltranslateforus,Imean?
Wearenotinthatmanufacturingsegmentatall,soIdon'tthinkitwill
BharatSheth,Analyst
Imean,thosepeoplelikeCisco,andtheyhavetoputupafactoryoverhere,telecommunicationandall.
Yeah.
BharatSheth,Analyst
So,iftheyhaveto,howdoourembeddedbusinesscangetbenefitoutofwecanleverageourembeddedstrengthinthosearea.
The one way of servicing those customers would be in India itself, because they would have products which they would create,
whicharemeantfortheIndiamarketandtheywouldtypicallybelowcostdevices,whichtheywillcomeuptoservicethemarket.
AndsoanyR&Danddesignservicesorevendevelopmentservicesthatwecandoforthemandwearealreadydoingitforquitea
fewmultinationalsinIndianow.Sothatistheopportunityforus,butifitispurelyamanufacturingsetup,youwon'thavepardon.
BharatSheth,Analyst
Deterring,Imean,ourservicestothosemanufacturer?
No, so that will not be an opportunity for catering to the manufacturing plant, but if they have design services within India, who
enable in their manufacturing decision, then we can service them, and which is what they will do. They will setup a local design
shop,sothattheycancontinuouslyinnovateandcomeupwithproductsthatadapt.Itisjustlikethemostofthecarmanufacturers
havecomeupwithlowcostcarsorlowcostvehiclesintheIndianmarket,becausetheyafterTatascameoutwiththeNanocar,
it has really given room for a lot of companies to innovate in that area. Similarly, in the semiconductor space or in the electronic
space,youwillhavealotofdesignhousesbeingsetuphere.
BharatSheth,Analyst
Andthis,geographically,Imean,howareembedded?WearemainlyinEuropeorwearecateringtoEurope,Japan,US,all?
WeareinUSandinEurope.InEurope,wearemorefocused,moreconcentratedinGermany,wherewehavebigoperations.
BharatSheth,Analyst
Andso,Imean,foroursolutionwewerelookingtoexpandgeographically,socanyouupdateabitonthat,Imean?
Yeah. So we are looking at all our solutions for expansion in the Middle East, Africa and AsiaPacific regions. Particularly,
insurance solutions, ports and cargo solutions, eGovernance solutions, banking and financial service solutions and some
andminingrelatedsolutions.
BharatSheth,Analyst
Howisthecurrenttractioninthatandhowdoyousee,Imean,goingaheadthatwill
We see good opportunities for this. And we have had initial successes, which is going to enable us to replicate them in these
marketplace.
BharatSheth,Analyst
Okay. And Sir, andthisGenesis,as you said, we arelookingupfor thisSME segment,so do youhave any othersuch I meancloud
basedserviceswhereyoulook,Imean,targetingSMEsectorotherthanthisGenesis?
Yeah.Wedohavesomeothersolutions.Forexample,vehiclemanagementsystemscouldbeaSaaSbasedservice.Andthen,we
alsolookingatbanking,corebankingforthesmallandmediumsectorandsoon.
BharatSheth,Analyst
Onthisvehicletracking,doyouthinkthatoursolutioncanbeoffered,Imean,globallylikeportsolutionwehaveinternalized.
WealreadyhavegotinternationalcustomersinvehicletrackinginAfrica.Sothisisfairlysignificantdevelopmentforus.Sowesee
an opportunity in Middle East and Africa. About the American market and the more advanced markets, we see SI opportunities
there,notforourproducttobepositionedthere.
BharatSheth,Analyst
Okay.Thankyou.Thanksforthat.
Thankyou.
Operator
Thankyou.We'regoingtotakeournextquestionfromthelineofPralayDasfromElaraCapital.Pleasegoahead.
PralayDas,Analyst
Great set of numbers, Mr. Gupta and Mr. Ramanan, congrats. To startoff with, on CS, I mean, there is obviously a
quarteronquartervariabilityinmargins,whichis,Iguess,ledbythecomponentofequipments.Butthisparticularquarter,asthe
componentofequipmentseemstohavegonedownwiththemarginshavegonedownaswell.SoamIreadingthiswrong?
No,equipmenthasactuallygoneupthisquarter.Ithasgoneupby20%overto18%quarteronquarter.
PralayDas,Analyst
Okay.SothatiswhatisleadingtotheIwasactuallycomparingitversusthefirstquarterwhenwehad11%kindofamargin.
Yeah.
PralayDas,Analyst
So,Imean,weexpectthesekindofvariabilitiestocontinue,butonalongertermbasis,wheredoyouthinkthemarginson
CSwillsettle?
Actually,theCSmargintypicallyistillthetimewedon'tscaleupinternationalbusinesssignificantly.Withthecurrentbusinessmix
PralayDas,Analyst
Right.
ourCSmarginsarelikelowerdoubledigitorhighersingledigit.Sowehadbeenintherangeofaroundyoucansay9%,10%.
PralayDas,Analyst
Correct,correct.
Ithasakindofnaturalmarginofthisbusiness.
PralayDas,Analyst
Fairenough.Andofthenumberofseatsthatareonline,howmanywouldyouwouldbevacantasofnow?Asinnotbeingused
byyou,aswellasnotlistouttoTCS?
Thereisnothingthatkind.
BharatSheth,Analyst
Nothing.
Sowhathashappenedisthat,supposed,weweresupposedtouse2,500seats.
BharatSheth,Analyst
Right.
Ifwearecurrentlyusing,say,1,200,soremainingseatforthetimebeingwehavegiventoTCStemporarilytouse.
BharatSheth,Analyst
Okay.AndwhatisthekindofnoticethatyourequiretogivetoTCSto?
Asandwhenactually,wheneverwesignanewcontractandweknowthatweneedtohavemoreseats.
BharatSheth,Analyst
Right.
Andweareabletotellthemandthen,maybewithatimeoftwotothreemonths,whichnormallytakesforrampingup,theywillbe
abletogive.
BharatSheth,Analyst
Alright.
AndanotherthingisthatthoseseatshavebeentemporarilygiventothempendingcommissioningofPhaseIII.
BharatSheth,Analyst
Pendingof?
Thenultimatelytheywillmovethere.
BharatSheth,Analyst
Pendingof?
PendingofPhaseIII.
BharatSheth,Analyst
Right,PhaseIII.
Yeah.Soultimatelytheywillmove.
BharatSheth,Analyst
Okay.AndwhatwastheTCS'GTM[ph]thisparticularquarter?
58%.
BharatSheth,Analyst
Soitwas53%,Iguess,lastquarter?
Well,lastquarterwas56%.
BharatSheth,Analyst
56%.
Yeah.
BharatSheth,Analyst
Allright.AndthedriverofmarginexpansioninbothSIandITeS,hasitbeen,portfoliomixedchangesormoreorganicleversbeen?
Thereisnosignificantchangeinportfoliomix.
BharatSheth,Analyst
Okay.
It'sbasicallybecauseofvolume.
BharatSheth,Analyst
Allright.
AndabitofForexbeing(inaudible).
BharatSheth,Analyst
Allright.
And so, these are the businesses which have got bulk of international business. So they got the advantage of favorable Forex
conditions.
BharatSheth,Analyst
Fairenough.That'sallfrommyside.Thanks.Thanksalot.
Thankyou.
Operator
Thankyou.Ladiesandgentlemen,thatwasthelastquestion.Atthistime,Iwouldnowliketohandovertheconferenceto
Mr.AshishAggarwalforclosingcomments.Thankyou.
AshishAggarwal,ResearchAnalyst
Yeah. I would like to thank all the participants for taking all their time for the call, and as well as the management for taking out
theirvaluabletimetoparticipateinthecall.
Yeah,thankyou,Ashish,andthankstoalltheparticipantstotaketimeouttoparticipateinthiscall.Thankyou.
Thankyouverymuch,everybody.
Operator
Thank you. On behalf of Tata Securities Limited, that concludes this conference call. Thank you for joining us. You may now
disconnectyouline.Thankyou.

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