Good day, and welcome to the TCS Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali, Global Head, Investor Relations at TCS.
Thank you, and over to you, sir.
Thank you, Stephen. Good evening, and welcome, everyone. Thank you for joining us today to discuss TCS financial results for the Q2 of fiscal year 2022 that ended September 30, 2021. This call is being webcast through our website and an archive including the transcript will be available on the site for the duration of this quarter. The financial statements, quarterly fact sheet and press releases are also available on our website.
Our leadership team is present on this call to discuss our results. We have with us today, Mr. Rajesh Gopinathan, Chief Executive Officer and Managing Director.
Good evening, everyone.
So, N. G. Supramaniam, Chief Operating Officer.
Good evening, everyone.
Mr. Sameer Sekh Saria, Chief Financial Officer.
Hello, Al.
Mr. Milan Lucker, Chief Human Resources
Hi, everyone.
Rajesh and Sameer will give a brief overview of the company's performance followed by a Q and A session. As you are aware, we don't provide specific revenue or earnings guidance, and anything said on this call, which reflects our outlook for the future all which could be construed as a forward looking statement, must be reviewed in conjunction with the risks that the company faces. We have outlined these risks The second slide of the quarterly fact sheet available on our website and which has been emailed out to those who have subscribed to our mailing list. With that, I would like to turn the call over to Rajesh.
Thank you, Kedar, and once again, welcome, everyone. Thank you for joining us on a Friday evening. We are very pleased with the all around strong performance this quarter. On the revenue side, all of our industry verticals grew in the mid teens or more. Overall, we grew 15.5% in year on year on constant currency terms and 16.8 percent in reported dollar terms as well as on reported rupee terms.
Our operating margin for the quarter showed its inherent resilience, expanding to 25.6 percent despite industry level inflationary headwinds. Net margins in Q2 came in at 20.5%. I'll now ask Sameer to go over all the headline numbers, financials and segmental performance, and I'll join you again later to talk about the demand trends we are seeing and the emerging opportunities in growth Mishan, over to you, Sameer.
Thank you, Rajesh. Let me first walk you all through the headline numbers. The 2nd quarter of FY 2022, Our revenues grew 15.5 percent I O I on a constant currency basis. Reported revenue in INR was INR 468 point 7,000,000,000 which is a growth of 16.8%. In USD terms, revenue was 6,330,000,000 again, a YOY growth of 16.8%.
Let me now provide our segmental performance details for the quarter. All growth numbers are in YOY, year on year constant currency terms. We saw strong double digit growth in all our verticals. Growth was led by manufacturing vertical, which grew 21.7%, followed by life sciences and healthcare at 19%, Retail and CPG at 18.4% and BFSI at 17%. Speaking of BFSI, An important milestone worth highlighting here is our quarterly run rate from our major markets BFSI services alone cross $2,000,000,000 mark.
Including revenues from our products, Platforms and Regional Markets, we would be one of the largest providers of IT consulting services and solutions in the BFSI industry globally. We also saw good acceleration in communication and media, which grew 15.6% and in Technology and Services, which grew 14.8%. In geography terms, we had good growth across all our markets. Growth was led by North America at 17.4%, U. K.
Grew 15.6% and Continental Europe grew 13.5%. Among regional markets, growth was led by India at 20.1%, followed by Latin America, 15.2%, Middle East and Africa at 13.8% and Asia Pacific at 7.6%. Our portfolio of products and platforms performed well in Q2. Ignio, our cognitive automation software, signed up 22 new customers and 8 co lives. Digitate has continued to build out a strong in terms of technology partners as well as channel partners.
Its Adaptive Factory now provides 50 out of box integrations between Ignio and 3rd party commercial products and platforms. Digitate Academy has trained 9,761 professionals till date and 35,300 and 106 professionals on Ignio. Ignio's success stories continue to come in. Here is one example. 1 of the largest Midwestern consumer banks of U.
S. Went live this quarter with Igneo, AIOps And has experienced reduced MTTR, Mean Time to Restore, by 90%, which significantly improves their operational resilience and reduces downtime of critical applications and avoiding the critical business SLM assets. TCS Bank, our flagship product suite for financial services domain, has find new wins and free go lives in One of India's leading private insurance players has successfully rolled out TCS Banks for insurance across India For servicing, renewal and claims processing of its health insurance policies, 1,900,000 policies spanning more than 30 products in Health and Personal Accident were migrated in this program. Accord's blockchain platform has 2 new wins and one go live in Q2. We also won our 1st consumer 1st customer in pharma industry.
A large custodian in U. K. Has selected VAS for handling announcements for its centralized corporate actions event Capture utility that services multiple business lines, including global custody, local custody and fund accounting. TCS Crop Protection as a Service solution will provide the security, compliance and high availability that financial services companies require, combined with the flexibility and agility of the cloud. TCS Hops suite of products for communication service providers has 4 new wins and 6 go lives in Q2.
The Hops product cloud was also leveraged by 1 of the largest telecom service providers in India to launch our 1st of its kind converged solution to deliver mass personalization by bundling 2 or more services. TwinX, our AI based digital win solution has had 4 wins in 6 core lives. TCS ION continues to be the largest provider in the country, and we have now expanded our work in education transformation through our engagements in states of Odisha, Karila and Telanga now. Lastly, TCS MasterCraft, our suite of intelligent automation products for enterprise application development, Modernization and delivery has 22 new wins in Q2. Agile, our enterprise agile planning and delivery platform had saw 3 new wins.
Moving on to client metrics, we track these closely because they are proof points that our customer centric strategy of continually expanding and deepening our engagements is working. In Q2, we had robust additions in every revenue bucket compared to a year ago period. We added 5 more clients in 100,000,000 plus band, bringing the total to 54. We added 17 more clients in 50,000,000 plus band, bringing the total to 114,000,000 19 clients in 20,000,000 plus band, bringing the total to 247,000,000 31 clients in 10,000,000 plus band, taking the total 417, 44 in 5,000,000 plus band, with a total of 609. And lastly, 62 more clients in 1,000,000 plus band, taking the total to 1138.
Let me now go over the financials. Supply side shortages and increased employee churn have led to higher backfilling expenses and greater use of subcontractors across the industry. Additionally, currency was not favorable this quarter. While the U. S.
Dollar appreciated, all other currencies depreciated against the creating a margin headwind. Despite these headwinds, through disciplined execution, we were able to expand our operating margin by 10 basis Net income margin was at 20.5% and our EPS grew 15.8% year over year. ETR, our effective tax rate for the quarter was 25.6%. Our accounts receivable was at 67 days sales outstanding in dollar terms, up 2 days compared to Q1. Net cash from operations was at INR99.45 billion, which is a cash conversion of 103% of net income.
Free cash flow was INR92.29 billion. Invested funds for September 30 stood at INR605,480,000,000 The Board has recommended an interim dividend of INR 7 per share. On the People front, we had net additions of 19,690 in Q2, bringing the total headcount to 5,028,748. It continues to be a very diverse workforce with 157 nationalities. While this is still the lowest in the industry, It is a big increase from the unusually low attrition we had over the last year due to And reflects the industry wide churn.
We had the foresight to continue hiring in large numbers throughout the second half of the last year And the first half of this year, in this fiscal, we have already onboarded 43,000 fresh engineers, all trained on latest technologies, while also ramping up our organic talent development initiatives and our employee engagement outreach. This helped us create a solid pipeline of talent while containing attrition. This has helped us overcome the supply side challenges seen across the industry and continuing to meet all our delivery commitments. Over 95% of our associates have received at least one dose of the vaccine and Over 70% have been fully vaccinated. We plan to bring back our workforce to the workplace gradually by the end of the year.
Over to Rajesh now for demand drivers and trends.
Thank you, Sameer. Look at our growth over the last few quarters, it has been driven by 3 broad trends: increased outsourcing, investment in building a digital core and growth and transformation agendas of our clients. Our strong growth in Q2 was once again driven by all 3 drivers. Let me now talk a little about each of these. Operations optimization has been an ongoing theme with many of our customers.
And I mentioned earlier, customers are looking to free up resources, both human and financial to support the transformation programs. This is resulting in higher levels of outsourcing activity in IT operations as well as in business operations, and it's gaining further urgency because of the scarcity of talent and the speed at which the demand is being driven. We continue to dominate this space by taking a differentiated approach that leverages our innovative machine first delivery model or MSTM. By embedding intelligent automation deep within the enterprise, we are able to help customers unlock tremendous value that traditional models based on labor arbitrage alone find very The heart of our machine first approach is TCS Cognix, an AI driven human machine collaboration suite that consists of a large library of prebuilt solutions addressing the entire breadth of IT and business operations across multiple industries. Using this, we are able to very quickly transform operations, Embedding AI, machine learning and machine vision and conversational systems across the enterprise and take the customer to an end state operating model that is leaner, More agile and reduces turnaround time for key processes to deliver superior customer experience.
In the
last 12 months since we launched Cognex, We have won multiple engagements using this suite. In Q2, we had 6 large deals that use Cognex to transform the customer's operating model. In addition to this, we continue to gain market share, benefiting from applied to quality that we've seen over the last 18 months as well as in structured vendor consolidation exercises. Coming to cloud transformation and cloud adoption, possibilities for business transformation that the hyperscaler stack opens up continue to be very big drivers of These multi horizon cloud transformation journeys typically begin with cloud migration, including application modernization and data estate modernization. Once again, this quarter, we have had large number of deal wins around such Horizon 1 initiatives, some of which we have listed in our press release.
As part of the modernization, we also saw instances of customers shifting their ERP and other enterprise applications from on premise model to SaaS and hosted versions. Areas of focus include e commerce and customer experience, supply chain and human capital and leveraging SAP S4HANA or Salesforce Cloud or IoT Cloud Suite along with other leading SaaS applications. As an example, U. S.-based Medical Technologies Multinational, where we are implementing an SAP S4HANA solution to help them realize their vision of consolidating on to one global ERP platform to harmonize their business processes and support new business model opportunities. Some of them are also progressing to Horizon 2, using native capabilities of the cloud to transform the core activities, driving superior business outcomes and also paving the way for innovative business models.
For example, for a large reinsurer in Europe, they have engaged us to design and develop their next generation credit and surety insurance underwriting platform on the cloud. The new platform will leverage cloud native capabilities to help our client transform their underwriting process using larger and richer data sets, Deep analytics and automation to significantly enhance the underwriting quality, speed and throughput. This will enable them to take on more business and offer a broader range of products and provide a superior customer experience. But more importantly, the platform is also being architected so that it Can we monetize in the future by opening it up to other smaller insurers or reinsurers and giving them access to new attractive risk pools This is the kind of horizon 3 opportunities that we are most excited about, where individual anchor clients will start reenergizing ecosystems to come together around these cloud based solutions to reach seamlessly reach multiple customers. Coming to the 2nd broad theme of industry transformation, We have been highlighting how TCS has been playing an impactful role in helping individual enterprises realize their growth aspirations through The impact is many fold higher when the customer happens to be an ecosystem owner or a market infrastructure whose Transmission can reshape an entire market altogether.
Let me share a couple of examples. In Australia, The Australian Energy Market Operator or AEMO is an independent organization that manages all electricity and gas systems and markets across Australia. It's responsible for the settlement of national electricity market, which connects the grids of Eastern and Southern Australian states to create a wholesale energy market. Until now, AMO had only been able to settle the market in 30 minute blocks, limited by its ability to segment the data. This time block was thought to favor incumbent technologies and handicapped innovation.
To address these inequities, the 5 minute settlement rule That was introduced in what might be the biggest ever market reform in the Australian energy market till date and possibly one of the leading waveforms globally in this market. The 5 minute settlement role will shift the current 30 minute wholesale electricity spot market settlement period to 5 minutes or less, providing a better price signal for in faster response technologies such as batteries and gas peaking generators. It will also enable more efficient bidding, operational decisions and investments aligned to dispatch and financial settlement period. TSYS was chosen as a technology partner for this change on the basis of the solution we propose and the cloud based settlement platform we designed and developed successfully went live on October 1. Similarly, in the financial services industry, As you know, we are the largest independent software provider to the market infrastructure institutions with our proven suite of TCS banks for market infrastructure and custody solutions powering the operations of Over 50 market critical institutions across 66 countries.
With its unique ability to support multiple markets, currencies and asset classes on the same platform and its support for a wide range of messaging standards that enable real time interfaces with market participants and external ecosystems. It has been a key catalyst in driving transformation in many markets worldwide. But coming closer home to India, some of you would have followed our recent announcement of the work that we're doing with Multi Commodity Exchange of India, which has selected TCS as its technology partner for its growth and transformation. As part of Project Udaan, TSYS will help NCX build a new technology core transforming its trading as well as post trade function to support its future growth and further strengthen its leadership position in the commodity derivatives market in India. The Interesting aspect of this is how we have partnered with another customer of ours, Deutsche Borse, where we are using solution components from them tightly integrated with settlement component from banks to create a world class solution for MCX in India.
This kind of ecosystem based Opportunities where multiple technology solutions come together from different players in the industry will be the part of the future. And we see our role as a system integrator with significant domain capability and a strong suite of our own products and platforms being the unique glue that will hold this ecosystem together. Another example is our newly launched Quots for Markets, which helps market infrastructure institutions such as exchanges, depositories and central banks, payment infrastructures, etcetera evolve with the times and launch next generation services around to drive the future growth. 4 market infrastructure institutions have already signed up for this, including 3 in India and deployment is currently underway. Another area that we have spoken about in the past and we are very excited about is this field of engineering services.
Product innovation is central to our customers' growth and transformation strategies. Building newer products or newer features or capabilities in existing products that allow them to sell more to existing market segments or interest new segments altogether. We have spoken multiple times about privatization as a common theme, But we have also seen we've seen that traditionally been strong players in this space, helping product companies expand their innovation capability by using our engineering design, R and D and industrialization services. The emergence of digital technologies, particularly IoT, big Data analytics and cloud has significantly expanded the addressable market for us as more and more product manufacturers make the product intelligent with sensors and embrace an as a service model building service layers around the product to enable lifelong engagement with the customer and to drive new revenue streams. Our engineering services practice has been has seen steady growth over the last 5 years, straddling the product innovation opportunity end to end, Helping customers develop an idea into a prototype and a product and then take the concept product all the way to production.
With connected technologies like IoT, T Series also helps track Product usage performance at the customer end, closing the loop as it were. Very importantly, we are a major player in the ongoing case Ecosystem that is creating a connected autonomous shared electric transformation of the automotive sector, working with almost all the major auto OEMs, startups and Tier 1 suppliers in their product innovation life cycle. TSYS teams are working with leading Tier 1s and OEMs in Building these new age solutions such as autonomous AI based algorithms, electric vehicle battery management software, some of which we have spoken about last time And cloud based connected car applications. One particular engagement, which I think best exemplifies the breadth and depth of TCS automotive design capability is Something that we're doing with the European headquarters global auto OEM. PCS has been the strategic partner for developing a new range of car models catering to the emerging markets.
These markets, as you can appreciate, are characterized by price sensitive consumers. So the product design and engineering has to adapt accordingly. We are doing the complete strategy, product design and engineering, homologation and helping build a high level of localization of the parts of each market, All designed to very stringent cost targets. Another example of how TCS is going beyond its traditional remit, where we are actually working with the customer to build out that Supply ecosystem and working with their suppliers to actually go into a iterative design mode to get to the price targets that the end customer end product that this customer seeks to launch in a market 2 to 3 years ahead. So that kind of ability to see that and to link that back into a tight value engineering loop and to leverage technology and the ability to engage with the domain knowledge With the entire ecosystem is something that we believe is quite unique to TCS in the spread of services that we have systematically been investing and building out on.
The customer appreciated our ability to bring together this end to end capabilities that is needed to help it and Deep product design and innovation expertise, value engineering, etcetera. The work that started for Asian markets has now We've expanded to cover Latin American markets also and they've been deeply appreciated by their customer who has awarded us their best supplier award among the other areas of appreciation that they have given to us. Moving on to another space, which is gaining a lot of traction in recent times is the emergence of the B2B Commerce opportunity And to sum also the direct to consumer commerce opportunity. Coming to the direct to consumer, CPG companies in particular have been investing in Direct to consumer initiatives to gain direct access to end consumers and to deepen insight driven consumer engagement without encumbering The intermediary channels. We are enabling rapid shift to online e commerce as the preferred channel from brick and mortar stores or aggregator retailers, helping our clients establish direct customer connect, gain better margins and enhance scale of business and volumes.
A leading Swiss based pharmaceutical company specializing in dermatological treatments and skin care products has selected PCS to The project includes an initial implementation for 3 countries followed by a global rollout for 30 plus countries over 3 years and support leveraging a leading commerce cloud platform. Another example is a leading global dental and medical products distributor who has partnered with TCS to accelerate transformation of the digital channels. Dealing with competition from online majors, our client wanted to move to a more touchless sales and service paradigm. The program covers B2B e commerce transformation across Europe, UK, America is covering customer facing interactions and channels. Counter trend to this is that channel intermediaries are investing in technology to make themselves more relevant to the And in certain cases, even seeking to achieve Eclipse OEMs, we are participating in that opportunity as well.
For example, for a global distributor of electrical and electronic components, TSYS has helped build a cloud based industrial IoT platform That connects and collects data from high value industrial assets and provides comprehensive analytical dashboard and insights for driving improvements
And we are pleased with the progress in
productivity maintenance, reliability management and operational efficiency. Using this, our client has been able to offer a range of new services and deliver a range of benefits to the end customers beyond just being the preferred supplier of multiple individual vendor items that they were originally positioned at. The predictive maintenance capacity has resulted in availabilities reaching 99% and access a new SKU, which is their own SKU being delivered into their end customer systems. Partnering with teachers helped our client to accelerate the transformation from being a component distributor to industrial digital solutions provider. The new platform created new revenue streams with component commoditization, boosted profitability And reinforce its position as an innovation pioneer in industrial component ecosystems.
So the broad theme here is, as we have been talking in the past, on growth and transformation as a common agenda. Coming back to some of the things that we've spoken about in the past, M and A divestitures continues to be a great area of growth for us. And we are once again participating in several new deal wins in Q2. There is an example of that is the sale of Cordis, the world leading cardiovascular and endovascular medical devices company, Was one off from Cardinal Health to Hellman and Friedman in August. TSYS was engaged to enable Cordis to function as an independent TSYS will lead the development of their end state technology strategy.
This includes portfolio rationalization, day 1 readiness planning, as well as business case support and cost model options. TSYS will also create post day 1 operational support organization to provide an optimized OpEx model. Similarly, we have been selected by a leading consumer goods company in Europe to enable the divestiture of its domestic appliances business and drive their business transformation into state of the art digital for CPG company. PCs will design, build and implement brand new greenfield And applications to set up the new entity as an agile B2C company, leveraging one of the most respected brands in this industry and manage its technology landscape. We have spoken about how we have invested early in a dedicated M and A strategy offering that brings together multiple service offerings, acceleration frameworks and sophisticated change management capabilities.
Leveraging this and our contextual knowledge of our customers' complex IT line Yes. We are able to provide practical and pragmatic M and A solutions to our clients from strategy through execution. Over the last 3 years, we have built a solid reputation in this domain, especially so can be relied upon to enable smooth day 1 operations, helping us win more and more with such deals. Coming To the area of sustainability that we spoke about at length last time, I want to showcase a few recent engagements. Support authority in Middle East and Africa region has selected TCS for implementation of TCS Clever Energy for its terminals to build a monitoring and visualization By integrating various utility meters and the building management systems into a single platform.
Similarly, Middle Eastern Warehousing Corporation has engaged research to help analyze and Report their carbon footprint across the value chain to effectively manage their overall carbon emissions. Leading European Bank has partnered with TSYS to incorporate Climate risk factors in credit risk scoring across climate risk scenarios to quantify the bank's exposure to climate risk. Finally, TSYS were engaged by a leading UK based bank in the strategic climate risk assessment program. TSYS will provide services for data sourcing, climate methodology analysis and dashboard reporting in compliance with the regulation. So coming now and on to the Q2 order book.
These are some of the representative trends that we have been that have been driving our strong growth in revenue as well as in our order book. On the back of very strong order book in Q1, we once again We had a strong set of deal wins in Q2 across all industry verticals and geographies. Our TCV in Q2 was $7,600,000,000 Once again, it's a very heterogeneous mix of large, midsized and small deals. When you compare this against year on the last year's number And removing the one very last mega deal that we reported in Q2 of last year, this represents a 25% expansion On like to like TCV. By vertical, BFSI had a TCV of 2,100,000,000, while retail once again had a very strong order book of 1,200,000,000.
The The TCV of deals signed in North America stood at $3,900,000,000 Lastly, while the strength of the demand environment is now no longer in doubt and we are very confident of its sustainability over the next the medium term. We also believe that the growth tailwind offers us an opportunity to position ourselves as the preferred growth and transformation partner of our customers. While pursuing the opportunities at hand, We will continue to invest in organic talent development to build the workforce of the future in research and innovation, intellectual property and in building out A comprehensive set of offerings that cater to the needs of every key stakeholder in the enterprise across every point in the business cycle. We believe this is very important to build a sustainable business
We will now begin the question and answer The first question is from the line of Yogesh Agarwal From HSBC, please go ahead.
Yes. Hi. I just have a couple of questions, if I may. Rajesh, I'm just trying to reconcile the TCV of RMB7.6 billion with overall demand environment. And I think you mentioned 25% growth ex of One large deal.
But one of the trends we have seen at the sector level in the recent months is limited mega deals, but high velocity of smaller deals. So in your mix of your SEK 7,600,000,000, how is the mix looking like? Is the duration come down? And If the ACV or the annual contract value is better than TCV, 25% growth. And secondly, in the past, we have seen deflation in legacy business, which you have talked about as well whenever there is a renewal.
Are you seeing or more importantly, are you expecting this rate of deflation in legacy to come down with all the supply trends and overall strong demand?
Yogesh, I wouldn't call out any significant change to the overall TCV or the pipeline. Mega deals, by definition, their frequency is different. And when you look at the pipeline or the TCB without the mega deal, they are pretty much similar. It's a good mix of both low duration as well as medium to last duration So there's no significant movement to either expanded durations or reduced durations. I think this is a topic that we have discussed multiple times in the past year, individually also.
The trend that we are seeing is In line with the overall technology agenda, that is, deals that come up for renewal 5 years later We'll benefit from all the technological progress that have happened in that period. So when you compare it against the deal value of last period versus this The period there might seem optically to be a reduction. But remember that it also reflects The kind of efficiency gains that have been achieved in the space, if you take something as traditional as, let's say, infrastructure support. Nowadays, deals come packaged a lot with cloud based businesses or even in the past, the same infrastructure estate We'll be significantly more compressed on a like to like basis when you think about 5 year duration. The point is not that.
The point is that Is the technology spending at a client level and the technological intensity of the overall value chain reducing or increasing? And as long as it is increasing, the total value is what we are trying to address. And this is in line with other trends that have happened in this industry. Consumption increases. So this is not very different.
And I don't see any change to this scenario. Unit cost will go down, total contribution will increase. If you invest to stay ahead of the curve to be the most efficient producer, You will participate in the cycle or the cycle will kill you.
Got it. Got it. No, that's what I was trying to understand. If the recent, the supply But you are saying it's the same trend as the past?
The next question is from the line of Sandeep Agarwal from EDELWEISS. Please go ahead.
Yes. Hi. Thanks for taking my question. I have one question on the margin and one question on the growth. So the way the deal momentum is building up and you made a statement, it is one of the best So what is your sense, where are we seeing the growth trajectory to be moving?
In particular, Will there be any impact of seasonality which generally happens because the kind of demand we are seeing and the supply constraints would have They might have pushed some of the deals to the next quarter. So do you think that there was some kind of Challenging execution also because of the high attrition and manpower issues, that is number 1. And number 2 will be on the margin front. Will it be fair to call that To speak of the pain in terms of financial intervention to retain employees is behind us and we can see Potential improvement going forward on the margin front?
Sandeep, the demand environment is very strong and it's likely to continue to be strong in the medium term. However, the seasonality of demand and seasonality of operation, It will be overlay on top of it. Now how much will that impact to be that we will get to know only closer to the end of the year. But I don't think the seasonality will go away, but the underlying demand trend will provide a significant positive support to it. And the important thing is that when we spoke about this, the nature of this demand environment, the The period of time for which we think that the demand environment is likely to remain strong is quite high.
And that is where this has changed In terms of the visibility of the demand environment, which you called out in the past also. So we are investing into that kind of a spectrum, Which is why our significant focus over the last many quarters also on very high campus hiring because we want to make sure that we have the right talent. While we continue to invest into our existing talent, we want to enhance that with fresh campus hiring. And we are doing that at one of the unprecedented scale, which is betting on the sustainability of the Demand environment. Short term volatility to cost basis coming from the attrition levels that you see Should be expected to play out, but these are not structural elements, but more transitionary elements as industry supply chain settles down.
And it's triggered by the fact that many players in the industry did not invest early on into creating that But that will rationalize over the next few quarters. And our agenda is slightly longer And we continue to invest into that demand visibility.
Thank you. That's all from my side.
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Two questions. Firstly, Has fulfillment related challenges limited your ability to grow revenue in the current quarter or the trends have broadly been in line with the expectations?
We actually like I said earlier, we have planned for Growth, 2 quarters ahead at this time. And that's why we brought in 48,000 campus hires In the first half of the year and then we continue to hire from the market at a very high risk and high volumes The last few quarters also. So the impact of supply on basically on the growth is Definitely not there until now, but we'll continue to basically get in more and more and plan better and better, invest more and more So that we don't know cause lack of growth because of supply.
Okay. Secondly, typically in 2Q, we see an operating leverage playing out on the margins and probably there were supply related issues And margins have been resilient on a sequential basis. But I'm just trying to understand the split between The investments made and potential headwinds from the supply side challenges and how long these investments will continue After which the large operating leverage will be visible in the margins? Thank you.
I think the operating leverage is visible in the expansion in margin that you've seen. The extent of it might not be as much given our increased dependence on subcontractors, partially caused by the still restrictions on travel And mobility of talent. So as some of those restrictions ease, we should be able to Rationalize the employee pool further. But it is not again, I said it's not Structurally any different than what we have seen in the past. Coming to the investment side, our investment agenda will continue at pace.
We have always spoken about the fact that it is our investment agenda that gives us the industry leading margins. And it is our intent to continue with that And across even a wider cross section of spaces that we are interested in. And you see that playing out in all aspects of our business, Whether it be products and platforms or new services or new markets that we are investing into.
Got it. Thank you.
Thank you. The next question is from the line of Apoorva Prasad from Elara Capital. Please go ahead.
Yes. Thanks for taking my question and Rajesh, good to hear your confidence on sustainability of demand. So a couple of ones. So on while I understand that mega deals have got long cycles, do you think there's any change in the frequency of mega deals? And more so, can you highlight from a pipeline perspective composition, does it look similar to recent wins?
Or do you think that can change? And I'm getting to this with the assumption that there are more G and T deals in the mix and more deals with ecosystem partners. So is that increasing the complexity and So
is that increasing the
complexity and reducing the frequency of mega deals?
I don't think these 2 are linked to the frequency of mega deals. If anything, as you can see, when you take a slightly longer term perspective, like, let's say, 10 years, there are a lot more like mega deals today than there used to be in the past at an industry level. So that's one aspect of it. But the pipeline that we have, that has a mix of deals of all sizes. Growth and transformation deals typically will be of smaller value, but shorter duration.
So the ACV level will not be very different. And ecosystem partner leverage does not significantly change the Nature, we rarely have scenarios where we pass partner revenues through our book. So what we are seeing is our own value of the deal. So it does not significantly change that mix. So
Got that. And just a related piece on that, Rajesh, on the cloud transformation deals that you referred to. So in your assessment, As customer transition from horizon 1 to horizon 2, you think that can have a bearing on total I mean, on deal sizes with increase in scope?
Yes and no. Typically Horizon 1 deals are multiyear deals, More consumption driven, so they are more simpler deals whereas Verizon 2 deals are More complex project based deals, but the value per se so typically, Horizon 1 deals start Small and then the consumption is driven by new programs that come on board, which will one way or the other have Horizon 2, Horizon 3 features. So it is very difficult to break out the value difference. But Horizon 2 deals are more project centric and then lead to ongoing consumption.
Got that. And just finally, if I may, so Europe appears to be slowing on sequential basis versus prior quarter's trend. So any color or any vertical flavor
It's structurally a very different one, but it has been across multiple verticals and multiple teams driving it. In some areas, a very large project that we had, a very large program that has come to an end and that has had some impact. We are also seeing a much more enhanced offshoring out of Europe as they tackle the whole talent scarcity by significantly increasing leverage closer to global standards. And that It provides volume, but has a deflationary impact on the reported revenue. But there is slowdown across some industry sectors, but which we are keeping a close watch on.
When you look at the deals per se, New customer addition and new deal signings in Europe are actually higher. And that gives us the confidence that This is a transitionary phase and we should see continuing momentum there when we look for our 2 quarters forward.
Thank you. All the best.
Thank you. The next question is from the line of Ruchi Borde from Bank of Baroda. Please go ahead.
Hi. Thank you Do you expect the intensity of supply pressure to ease possibly maybe 3, 4 quarters down the line?
We are basically, our estimating near about 2 to 3 quarters.
Now this will continue And then it will ease. So from Q2 onwards, what do we say it will start easing is our estimate based on what we are seeing. But we'll continue to watch this monitor this.
Okay. That's helpful. Secondly, I mean, last year, December quarter was anything but seasonally weak. Do you see, Rajesh, What is your initial sense on furloughs and seasonality impact this year?
Rishi, last year Q3 was when we actually got back to revenue parity. So on a sequential basis, it had A very, what should I say, benign comparatives. We are currently coming off 5, 4 quarters of straight growth. So the seasonality, we'll have to wait and see how it plays out.
The next question is from the line of Sudhir Guntupalli from ICICI Securities. Please go ahead.
Yes. Good evening, gentlemen. Thanks for giving me the opportunity. Rajesh, congratulations on your reappointment, sir. My first question, While we do understand that year on year growth rates still look strong, there is still a base discussion given that September 2020 itself is below what a normal timeline would have been in But if I look
at it on a Q on Q
basis, overall constant currency growth of around 3.6% and growth ex of India at 3.1% looks separate, especially in the context that September is seasonally a strong quarter. So Rajesh, have you seen a situation where as the base correction is
So which is fairly strong even from a sequential basis. So the growth trends and the growth visibility that we are talking about or the sustainability of the growth visibility that we're talking about is Fairly extended. Given the nature of work that is demanding it that is driving it. So I spoke earlier about the cloud transformation kind of programs, the various platform driven programs. So the nature of demand is such that we think that the growth visibility into the medium term continues to be very strong.
And second question for Milin, given the buy and fee in job market, we are actually seeing companies hiring at exotic and salary hikes. Of course, CCS still seems to be disciplined on that front. But when you look at the industry trend, the higher salaries kind of distort the Internal employee parity and may remain structurally elevated for several years to come. However, demand can be more cyclical. So how do you read the situation and what are your thoughts on the
So I think couple of points here. One is, yes, When we backfill attrition, yes, there is a marginal increase in the cost we see and
which is not for this quarter. It has been like this
The point is, internally, the way we manage talent is we do have No, strategic talent development programs where people go through that and significantly can accelerate their career paths, Their compensation, so there are ways to increase and accelerate compensation internally also. So those two things kind of balance each other in
Thank you. The next question is from the line of Sandeep Shah from Aquarius Capital. Please go ahead. Mr. Shah, we are unable to hear you.
If you can take the phone off speaker, please.
So just wanted to understand where are we in terms of the adoption journey by the client on the Horizon 1. And do you believe once it achieves a desired level of adoption, the growth Can be slightly slower versus what we have seen in Horizon 1? And in television interview, you also said that the Growth is getting consolidated versus earlier quarter. So is it that comment is for specific segment or is it at the overall level as a whole?
I'll answer the first part. I didn't fully understand the second. But first one, workload migration to the Cloud on a just on a pure migration perspective, estimates vary, but it's Somewhere in the range of 20% to 30%, while it might vary by industry to industry. So we are still At the early stages of this kind of adoption of the infrastructure as a service, which is the primary driver of Horizon 1 demand. And that still has quite a few legs to play out.
So that's I think the second question I didn't understand.
Yes. Just the follow-up to that. Once this Horizon 1 phase is over and we enter the Horizon 2. Do you believe the growth rate sustainability may be similar or slightly lower? And In your television interview today, you also made the comment that growth is getting consolidated versus high growth in the last few quarters.
Is it specific to some segments or the markets or is it overall?
The Horizon 1 as it plays out, we have spoken about this in the past, if you think, as a architectural shift that we're seeing. And that is the major point. In the past, we have seen that happen when we went from client server to web technologies And later on, as we went from web to mobile technologies, these are architectural shifts that have significant benefits. So Horizon 1 is the enabler towards that architectural shift. Once that migration is there, It unlocks a lot more possibilities and triggers new investment.
So While the Horizon 1 base case volume might go down, but it will unlock significantly higher volumes On the Horizon 2, Horizon 3 spectrum. And that's the promise and the hope that this industry is always built on. On the consolidation of demand, I would have said it in certain context, but and or in terms of a sequential trend per se. I I think what I said is that we are consolidating the growth and looking forward into the future, but I don't exactly remember what the context was.
Okay. And just second question, just to Sameer, I think in your television interview, you also said generally, seasonally, second half, our margin picks up versus But this time could be slightly different because attrition may have a short term challenges in terms of margin management even in second half of this year?
Yes. So the mention is about short term volatility. And whenever there is short term volatility, There would be tightness and pressure on margins and the kind of Supply side challenges which we have seen, we were able to maintain our so in spite of those supply Side challenges, we were able to sustain our margins in Q2, but we will have to watch it out for the next couple of quarters till such challenges continue.
Okay, okay. And Rajesh, whether clients are receptive about this in terms of compensating through pricing Is it too early to call out or looking at legacy portfolio being also higher for the industry, the overall pricing This may not be a tailwind at a console level for the industry as a whole.
We are seeing a full spectrum of response there. I mean, A lot of the consolidation led engagements are predicated on a win win, which includes overall efficiency gains for the client, while we use technology levers to transform the operating estate that we spoke about in the early part of my commentary today. Newer areas are command pricing premium, areas like what we spoke about, design thinking, developing new platforms, investing in horizon 2, horizon 3 kind of engagements. These are all coming At the premium, so there is both efficiency led business and innovation and transformation led business, which comes at different price Net net, it's a balancing kind of an environment. There is no significant move In either direction, but it stays at a portfolio level, it stays fairly stable.
The next question is from the line of Manik Taneja from JM Financial. Please go ahead.
Hi. Thank you for the opportunity. Rajesh, I wanted to get your thoughts around the fact that if you're seeing any new engagement models emerge Beyond the typical on-site offshore model, as the clients as well as the industry at large tries to address the talent deficit as well as The significant need to accelerate or fulfill demand?
I think the One that we are most excited about is the leverage of automation in deeply embedded manner, which we call machine first development Model MFDM. But this is a space that we think still has quite a lot of upside left in it. And we are systematically investing in how to embed it deeper into our service provision. So that's the biggest Delivery model change. Otherwise, Agile significantly changes the efficiency of Consumption is of course another transformative model.
And the 3rd model that has lot of Resonance is what we call as a product centric operating model, which combines agile at its core and integrates technology lot more closely with business transformation. So these all of these are trends that are gaining Momentum systematically.
Thank you. All the best wishes.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing comments.
Thank you. We had a strong to repeat, we had a strong broad based growth across all our industry verticals and very strong deal wins yet again in Q2. Our client additions were very strong across all revenue buckets this quarter, an important measure of the depth of our customer relationships. Our margins continue to be industry leading and have shown immense resilience despite supply side challenges this quarter and currency headwinds. On the people front, by investing ahead of time in hiring the right talent across the world and onboarding a record number of fresh engineers, we have been able to overcome supply chain challenges and stay on track with all our execution timelines.
Our attrition went up this quarter, but continues to be lowest in the industry. We are still watching this closely for the next few quarters. We have vaccinated 70% of our employees fully and over 95% have received at least one dose. This sets as well to start bringing them back to the workplace towards end of the year. Thank you all for joining us on this call today.
Enjoy the rest of your evening and do stay safe. Thank you.
Thank you, members of the management. On behalf of TCS, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines.