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Beyond bean counting

T.V. Mahalingam     April 14, 2010

Bar Milano opened its doors and North Italian menu to the well-heeled folks of New York in the first week of April, 2008. Located in Third Avenue of Manhattan, the restaurant was reviewed by the New York magazine as the kind of "casually elegant, darkly fashionable place... frequented by Kate Moss groupies and crowds of pencilthin gentlemen in Brioni suits." The critic trashed the pastas but strongly recommended an absinthe-laced cocktail, the Corpse Reviver No. 2.

Overall Winner and for Enhancing Competitiveness Through M&A

S. Mahalingam, CFO/ TCS

  • Background: Chartered Accountant, has worked with TCS since 1970.
  • Winning move in 2008-09: Steered TCS during tough times, helped the company make its largest ever acquisition (CGSL).
  • Challenge ahead: Mahalingam will have to ensure that TCS holds onto some of the cost efficiencies it has achieved in FY09, even as it grows in a reviving market.
  • Most likely to be heard saying: "Let's mail the appointment letters."
A vegetarian and teetotaler, Sethuraman Mahalingam is not a Brioni patron. Neither is he a Kate Moss acolyte. Those are not the reasons why the 62-year-old Chief Financial Officer (CFO) of Tata Consultancy Services (TCS) never got to dig a fashionable fork at the ravioli. Rather, in early January 2009, Mahalingam and his daughter, Anusha, were on their way to sample the restaurant's food. "My daughter, who was living in New York at that time, wanted to take me to the restaurant. When we went there, we found that the restaurant was no longer in business," recalls Mahalingam.

"One day it was there. A few days later, it was not. If any proof was needed about the impact of Lehman on the economic scene in the US, this was it," adds Mahalingam, ensconced in his Raveline Street Office in the Fort area of South Mumbai. These days Mahalingam can draw comfort from the fact that the TCS scrip has been buzzing ever since the company forked out an advance tax of Rs 178 crore for the last quarter of the current fiscal, as compared to just Rs 53 crore a year ago. That's done its bit to help TCS edge past Bangalore rival Infosys on the market cap front (at the time of writing TCS' market cap stood at Rs 158,092.83 crore as against Infosys' Rs 153,290.27 crore).

A little under 14 months ago, it was a different story: TCS' market cap was at a 30 per cent discount to Infosys. For Mahalingam, the closed eatery in Manhattan will always be emblematic of the perfect storm that TCS had run into in mid-2008. The first sign of trouble came in March, when JP Morgan Chase bought distressed US investment bank Bear Stearns at a fire-sale price of $2 a share. Bear Stearns was a client of TCS, though not a large one. So the folks at TCS HQ didn't have any reason for sleepless nights. Not yet.

A Storm Brews
The big rumble came on September 15, when one of TCS' largest clients, financial services giant Lehman Brothers, filed for bankruptcy. Ten days later, another client, Washington Mutual, went belly-up, becoming the largest banking failure in the United States. The rupee, thanks to outflows of foreign portfolio investments, began to yo-yo.

"It was definitely the toughest challenge I have ever faced professionally," says Mahalingam. Maha, as he is known at TCS, has seen several crises in his four-decade-long career with the company. "Our main vertical, BFSI (banking, financial services & insurance) was affected. So were other verticals. And unlike the dotcom bust, the damage was not just limited to the US," adds Mahalingam.


  • Keep it simple: In forex management, TCS did not bite into exotic products that banks offered. It preferred long-term contracts and did not play the market.
  • Improvement starts at home: TCS tightened internal processes like obtaining client certifications to ensure faster cash collection.
  • Plan long-term: Even at the peak of the recession, TCS invested to expand campus facilities. It inked the $505-m CGSL buy a fortnight after Lehman Brothers collapsed.
Even as Lehman turned turtle, the TCS top team was in the final stages of inking its largest ever purchase-a half-a-billion-dollar acquisition of Citigroup Global Services Ltd (CGSL), the BPO arm of Citigroup. The deal was signed within a fortnight of the fall of Lehman and Washington Mutual.

So, did this chartered-accountant -turned-programmer-turned-HR-head -turned-CFO dither at the possibility of splurging Rs 2,500 crore even as others were pinching pennies? The top brass of TCS decided to undertake a "stress analysis". "We asked ourselves what if things really go wrong, what kinds of risks we could take with regard to our cash position, how much cash we would need to continue operations etc," recalls Mahalingam.

TCS' kitty, even after the acquisition, was brimming with a little over Rs 4,000 crore. "We realised that we are reasonably comfortable. After that, we asked ourselves one fundamental question-how do we get as much cash into TCS as possible?" he adds.

The answer lay in the multipronged strategy that saw TCS tighten its belt on several fronts. For one, TCS had the highest Day Sales Outstanding (DSO) or debtor days-an indication of the time taken for service providers to get clients to pay up-among its peers. The company focussed on getting that number down.

TCS began to tighten the processes around fixed price projects to avoid overruns, which in turn ensured that the cash flowed in. As a result, DSOs came down from about 90 days in June 2008 to 75 days in December 2009. "The fact that TCS has significantly reduced the number of debtor days is a significant achievement. However, there is still scope for improvement," says Aniruddha Dange, Head of Research, India Infoline. Infosys' DSO, in comparison, is just 57 days, and Wipro's is 60.

Another area that analysts credit TCS with is its forex management skills. After all, in 2008-09, the rupee swung from 40 to 52.50 against the dollar. The problem was much more complex than just the oscillating rupee. TCS is a global company, which means that it earned revenues in several currencies. A year ago, the pound depreciated 38 per cent against the dollar but just eight per cent against the rupee, while the euro depreciated 19 per cent against dollar while appreciating seven per cent against the rupee.

"Taking a market call on currency is a dangerous thing. The cornerstone of our forex management is to protect TCS against volatility," explains Mahalingam. Therefore, unlike Infosys which goes in for shorter forward contracts (largely half year long), TCS prefers longer contracts (mostly one to three years, and rarely five year contracts). As a result, TCS bleeds more forex losses when the rupee depreciates and does better when it appreciates, like now.

That explains Mahalingam's reluctance to pat his own back. "We are not playing the market. We have taken a principled, pragmatic approach to forex management. We did not get into any exotic instruments, no swap, etc," adds Mahalingam, flashing his trademark smile.

It's this no-nonsense, simple approach that has earned Mahalingam several admirers within the company. "Maha is a true business CFO who has played multiple roles in TCS-ranging from delivery, HR to finance," says N. Chandrasekaran, CEO and MD, TCS. "His sense of humour and ready wit make him popular. His connect with the operating team, and understanding of the core business are his greatest strengths," he adds.

With the global scenario improving slowly, perhaps it's time Mahalingam made that pasta pilgrimage again. Bar Milano no longer exists. However, its owners have started another restaurant in the same premises called Inoteca. It's the same fare but at "recession-friendly" prices. If not anything else, that's a sign of better things to come for the American economy and TCS.

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