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‘Look East’ is TCS’ new business mantra

India’s largest software-services firm, TCS , believes it faces a large business opportunity in Japan and China — Asia’s largest- and second-largest economies, respectively – even though it admits it faces challenges in scaling up operations in the latter.

At the Annual Meeting of the New Champions, also known as Summer Davos, of the World Economic Forum, CNBC spoke with TCS chief N Chandrasekaran who said opportunities in both countries were huge even as it had already built up a sizeable business in Japan.

Indian software companies typically derive most of their revenues from doing work for companies in western markets such as US and Europe. TCS, which has witnessed the quickest growth among IT companies over the past 10 years, believes eastern markets provides a large opportunity for the firm too.

Also read: TCS at new high on retaining FY15 outlook; analysts bullish

When asked about the opportunity in Japan, widely dismissed as a “slow-growth market” for its staid economic growth over the few decades, Chandrasekaran said Japanese corporates were adopting digital technologies in a big way, which it aimed to provide.

TCS has a joint venture in Japan with homegrown conglomerate Mitsubishi and it had recently told analysts it was on track for better revenue growth in FY15, compared to last year, partially thanks to growth in the Japan unit, from where it derived little over USD 100 million.

“We have managed to build a strong team of local managers, etc, in Japan, combining our global best practices with their (Mitsubishi’s) knowledge of the country,” he said.

TCS, though, has struggled a bit to find its feet in China, a development Chandrasekaran admitted to the difficulty in learning the “culture and language of China and the willingness of Chinese companies to do businsess”.

“But the opportunity that exists and the extent of technology needed for businesses there is huge,” he said.

In Japan, though, cross currency movements may impact some of TCS’ profitability, according to analysts.

In a recent report, ICICI Direct said currency fluctuations, with the yen falling 2.6 percent quarter-on-quarter, “may impact reported dollar revenue growth by 70-80 basis points (0.7-0.8 percent) while reported rupee revenue growth may see marginal tailwinds as quarter to date, average rupee has depreciated about 1 percent.”

TCS stock price

On September 10, 2014, Tata Consultancy Services closed at Rs 2603.25, down Rs 27.05, or 1.03 percent. The 52-week high of the share was Rs 2667.00 and the 52-week low was Rs 1895.10.

The company’s trailing 12-month (TTM) EPS was at Rs 102.67 per share as per the quarter ended June 2014. The stock’s price-to-earnings (P/E) ratio was 25.36. The latest book value of the company is Rs 224.90 per share. At current value, the price-to-book value of the company is 11.58.


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