Ladies and gentlemen, 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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, Steven. Good evening and welcome, everyone. Thank you for joining us today to discuss TCS' financial results for the fourth quarter and full year fiscal year 2022 that ended March 31, 2022. 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 call for 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.
N. G. Subramaniam, Chief Operating Officer & Executive Director.
Good evening, everyone.
Samir Seksaria, Chief Financial Officer.
Hello, everyone.
Our Chief HR Officer, Mr. Milind Lakkad could not join us today due to a personal emergency. Samir will be also speaking on behalf of Milind. Our leadership team will give a brief overview of the company's performance, followed by a Q&A session. As you're aware, we do not provide specific revenue or earnings guidance and anything said on this call which reflects our outlook for the future or 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 in the second slide of the quarterly fact sheet available on our website and emailed out to those who subscribe to our mailing list. With that, I'd like to turn the call over to Rajesh.
Thank you, Kedar. Good morning, good afternoon, and good evening to all of you. We are closing fiscal year 2022 on a strong note. Our full year revenue growing at 16.8% in rupee terms and 15.4% in constant currency terms and 15.9% in dollar terms. We added $3.533 billion in incremental revenue during the year, our highest ever. Our operating margin for the year was at 25.3%, and net margin was at 20%. Having crossed the $25 billion milestone this year, we are now focused on our best to get to the next $25 billion. Towards that, we are rolling out a new industry first organization structure that adds customer relationship stage to the existing three dimensions that is the geography, industry vertical, and service line.
The new structure is more customer-centric and will enable curated experiences to our customers based on what stage they are at their relationship journey with TCS. We believe this will ease the path for us to become a growth and transformation partner for more of our customers. I will now invite Samir, Milind and N. G. to go over different aspects of our performance during the quarter. I'll chip in again later to provide more color on the demand trends we are seeing. Over to you, Samir.
Thank you, Rajesh. Let me walk you through the headline numbers. In the fourth quarter of FY 2022, our revenue crossed 50,000 crore mark, reaching INR 50,591 crore, which is a year-on-year growth of 15.8%. In dollar terms, revenues was $6.696 billion, a YOY growth of 11.8%. In CC terms, our revenue growth in Q4 was 14.3%. For the full year, our revenue was INR 191,754 crore, which is a growth of 16.8%. This in dollar terms was a reported revenue of $25.707 billion, a growth of 15.9%. In constant currency terms, this translates to 15.4%. Let me now go over the financial performance.
Our operating margin in Q4 stayed flat sequentially at 25%. As in the previous quarter, we had headwinds of about 90 basis points from ongoing supply side challenges, which were mitigated from operational efficiencies and 10 basis points of currency support. For the full year, our operating margins continued to be industry-leading at 25.3%. Annual increments, tactical interventions and increased subcontractor usage represented a headwind of 330 basis points, offset to some extent by operational efficiencies, improved realization and some currency support. Net income margin in Q4 was 19.6% and for the full year, 20%. EPS grew 16.1% during the year, excluding the provision we made towards legal claim in FY 2021. Effective tax rate for the year was 25.6%. Our accounts receivable was at 64 days DSO.
In dollar terms, down three days sequentially and four days year-on-year. Net cash flow from operations was INR 110.51 billion, which is a cash conversion of 111% of net income. Free cash flows were INR 102.59 billion. Invested funds as on March 31 stood at INR 560.53 billion. The board has recommended a final dividend of INR 22 per share. For the full year, this represents a shareholder payout of INR 31,424 crore, and this does not include INR 4,000 crore of buyback tax which has an outflow in the month of April. Now, since Milind could not join the call today, let me go over the people metrics as well.
On the people front, this has been a standout quarter where we set many benchmarks. We had an all-time high net addition in the quarter as well as for the full year at 35,229 in Q4 and 103,546 respectively for the full year, bringing the total headcount to 592,000, 592,195. The record net addition is a reflection of the strength of our employer brand and our ability to draw talent across the world. We received several accolades and external validations this quarter for our commitment to excellence in talent management. We were recognized by the Confederation of Indian Industry, CII, with the Role Model in HR Excellence and Prize for Leadership in HR Excellence awards at the CII HR Excellence Awards.
The Role Model Award has been given only twice before in the last 12 years. TCS ranked number 1 in the LinkedIn Top Companies list of the best workplaces for career growth in India. With top scores in providing the ability to advance, skills growth, company stability, external opportunity, company affinity, gender diversity, and spread on educational backgrounds. Lastly, we were recognized as a Global Top Employer for the seventh year in a row by the Top Employers Institute. Our focus on diversity and inclusion and localized hiring in all our major markets have resulted in a very diverse workforce in 153 nationalities represented, and women making up 35.6% of the base. We continue to invest heavily in organic talent development. In Q4, TCSers logged 22 million learning hours.
For the full year, TCSers logged 60.3 million learning hours and acquired 3.5 million digital competencies. The number of Contextual Masters, that is individuals who have demonstrated deep contextual knowledge of their customers' business and IT landscape, hit a new milestone, crossing 50,000 in Q4. Moving to talent retention, we have a track record of consistently maintaining the highest talent retention in the industry, even in the face of high levels of churn across the industry. Our attrition in IT services continued to rise on an LTM basis and was at 17.4%. However, the quarterly annualized attrition is flattening. Lastly, we have announced the salary increment with effect from April first, similar in quantum to prior years. With that, I'll request N.G. to give the segmental and product commentary.
Hello, guys. Thank you for joining us. Let me begin by providing the segmental performance details for the quarter. All growth numbers are on year-on-year constant currency basis. All our industry verticals grew in the mid to high teens in Q4 and for the full year. Q4 growth was led by Retail and CPG, which grew 22.1%, Manufacturing and Utilities, which grew 19%, and Communications and Media grew by 18.7%. Technology and Services grew 18%. Life Sciences and Healthcare grew 16.4%, and Financial Services grew by 12.9%.
For the full year, growth was led again by retail and CPG, which grew by 20.6%, manufacturing and utilities, which grew by 19.4%, life sciences and healthcare, 19.2%, financial services, 16.1%, technology and services, 15.8%, and communications and media by 14%. On a segmental basis, including revenues from emerging markets and products and platforms, our BFSI segment crossed $10 billion milestone this year. Moving on to geographic markets. Growth in Q4 was led by North America, which grew by 18.7%. U.K. grew by 13%, and Continental Europe by 10.1%. Among emerging markets, Latin America grew by 20.6%. Middle East and Africa grew by 7.3%. India by 7%. Asia Pacific by 5.5%.
On a full-year basis, North America grew by 17.5%, Continental Europe by 14%, and U.K. by 14.3%. Among emerging markets, Latin America grew 18.2%. India grew by 15%. Middle East and Africa grew by 12.9%, where Asia Pacific had 6.7% growth. Our portfolio of products and platforms continue to do well in the market. ignio™, our cognitive automation software, signed up 36 new clients in Q4, and we had six clients went live with ignio™ during the quarter. For the full year, ignio™ closed over 100 deals and had 27 go lives. The Digitate Academy has trained over 11,500 professionals in the marketplace and certified more than 4,100 professionals on ignio™.
ignio™ continues to transform operations across domains using AI and automation to enhance resilience in delivering superior business outcomes. For a leading energy generation and distribution company in North America, ignio™ is managing over 100,000 incidents autonomously with 100% successful resolution rate, covering 30% of their overall IT footprint. A global professional services provider has gone live with ignio AI.Digital Workspace. Proactively managing the health of over 11,000 laptops globally for better user experience and productivity. ignio™ also manages group policies, privileges, and updates for improved compliance and reduced vulnerability. TCS BaNCS, our flagship product suite for financial services domain, had four new wins and three go lives in the current Q4. In FY 2022, TCS BaNCS won 22 new logos and had 16 key go lives.
Half the wins were for the SaaS model, demonstrating the growth adoption of cloud and more importantly, TCS BaNCS cloud readiness for large and niche deployments. During the quarter, TCS BaNCS global securities platform has been selected by a leading South African financial services group for their personal and business finance business banking offerings, catering to investor services and will include custody and corporate actions as well. With this new deal, almost 95% of the custody transactions in South Africa will run on TCS BaNCS in addition to the central depository. Quartz blockchain platform had two new wins in Q4. The Quartz brand has extended its presence across multiple industries, ranging from financial services to the energy sector and pharmaceuticals. The leading corporate depository in India has selected Quartz for Markets to implement a solution for corporate bond issuance and covenant monitoring.
The solution will facilitate the creation of bond instruments by bringing together different stakeholders, including CSDs, debenture trustees, valuation firms, and exchanges into a blockchain-based ecosystem. The solution is designed to enable greater transparency in the issuance process by eliminating potential double counting of underlying assets, enabling real-time information updates for various stakeholders, and providing a single source of truth through the shared ledger. TCS HOBS suite of products for communication services had two big wins in Q4. TCS TwinX, our AI-based digital twin solution, had six wins and three go lives during the quarter. TCS OmniStore, our AI-powered universal commerce suite, had three new wins. TCS Optumera, our AI-powered merchandise optimization suite, had two new deal wins and three go lives. TCS iON has now onboarded 700+ corporates to enable job outcome linkage.
In FY 2022, TCS iON conducted 45 million in-center and 2.9 million remote assessments at national and regional scale. Let me now spend some time on our client metrics. As you know, our customer-centric strategy entails continually investing in building newer capabilities to create value in newer parts of our clients' businesses so that our relationship keeps expanding and deepening over time. Measuring our customers' upward progression across various revenue buckets is the surest validation of our strategy, so we track these metrics very closely. In Q4, we added 10 more clients for the last 12 months in the $100+ million band, bringing the total to 58. We added 19 more clients in the $50+ million band, bringing the total to 120. We added 14 more clients in $20 million band, bringing the total to 268.
We added 52 more clients in the $10 million band, bringing the total to 439. We added 69 more clients in the $5 million band, bringing the total to 638. We added 86 more clients in the $1+ million band, bringing the total to 1,152. With that, let me hand it over to Rajesh for some additional color on the demand drivers and outlook.
Thank you, NGS. We have spoken about three broad growth drivers this year: increased outsourcing, cloud adoption, and growth and transformation. When we talk of cloud adoption, it's not a single event but a multi-horizon transformation journey that begins with migration and other Horizon One activities. GNT is often the primary driver of our customers' Horizon Two investments, and so partnering customers in the initial stages of their cloud adoption is also opening the doors to us for their GNT initiatives. Coming to Horizon One, as in prior quarters, we have several new wins around Horizon One initiatives such as cloud migration, application and data modernization, et cetera. I'll give a few examples of such instances. For Coop, a leading Swedish retailer engaged us to migrate critical logistics applications to the public cloud. This migration has future-proofed Coop's core systems and enhanced its agility and scalability.
For a large Australian power utility, TCS helped execute the end-to-end transformation, including cloud discovery and assessment, foundation services, cloud migration, application modernization, and operations management. Using our factory approach, we helped migrate more than 150 applications and over 1,800 servers to the cloud, helping decommission its IT infrastructure, reduce technology debt, and enhance resilience, and provide a solid foundation for the company's Horizon Two plans. Similarly, for a large U.K.-based communication service provider, TCS has been engaged as its strategic data and analytics transformation partner to help build a common and simplified data platform on a public cloud, enabling future use cases around hyper-personalization, micro-marketing, differentiated customer experience, and even new revenue streams like data monetization. In terms of Horizon Two, while such initiatives help improve the organization's operational resilience, it gives greater agility and scalability to handle future growth.
The real value unlocking of the cloud investments comes from Horizon Two initiatives, which use the native capabilities of the cloud to try out new ways of working. Innovations around products or business models and new customer experiences. A few examples from what we mean when we talk about new ways of working. Leading European financial services firm engaged us to transform their time-consuming and error-prone financial spreading process used for determining the creditworthiness of corporate clients. Our TCS FSaaS, or the Financial Spreading-as-a-Service solution on a hyperscaler cloud, digitized the spreading process, extracting data from financial statements and regulatory filings using ML-based models to reduce the time by up to 7x with 99% accuracy. This enabled more accurate credit scoring, quicker lending decisions, and higher throughput and business growth. This engagement highlights how we are incubating and winning these Horizon Two deals.
The idea itself came up as a visible manifestation of contextual knowledge during an Innovation Day hackathon we had organized for the client. The account team then proactively pitched the idea to the client's risk management organization, eventually leading to an engagement. For Rabobank, a leading European bank, has partnered TCS to build a modern data warehouse platform on a public cloud for their wholesale customers' KYC business domain. The platform will ingest, curate, and generate KYC reports to view customer data in a consistent way across the globe using cloud-native analytics and reporting tools, and enable faster forecasting and business decisioning and onboarding. Similarly, we have been selected by a leading Swiss building materials provider as a strategic partner for its Plants of Tomorrow initiative, digital transformation, and journey to net zero goal.
TCS will leverage its Neural Manufacturing framework to develop IoT-based digital solutions enabling predictive operations and maintenance, intelligent automation, and robotics. These are expected to improve asset and plant performance, reduce energy costs, and carbon footprint. Looking at a few examples from product innovation, recurring theme in Horizon Two initiatives is product and service innovation to enable new business models, generate new revenue streams, and to drive growth. Here are a couple of examples. For an American corporation that specializes in water treatment, purification, cleaning, hygiene, and infection prevention solutions, TCS is helping develop a cloud-based connected products platform that will remotely monitor multiple equipment and related sanitizing consumables at customer sites.
Using this, the company can launch innovative products like digitally connected appliances for hand hygiene, surface sanitization, and dishwashing that will enable an as-a-service business model in the facilities management area and drive new revenue streams. Actionable insights from the platform leveraging AI and predictive analytics will enable timely refills, proactive maintenance, and unlock the ability to cross-sell and upsell. Similarly, we've been selected by HARTMANN, a leading surgical and medical instrument manufacturing company, to work on a future product line to add to their high compression bandage products portfolio. TCS will conceptualize, design, and co-develop a digital health solution for healthcare professionals and patients using IoT to simplify the pressure monitoring process. TCS will develop the sensor patch and its associated software components to detect the pressure sensor data and transmit it using NFC to the patient monitoring mobile application and cloud backend.
Coming on to customer experience. Lastly, with the idea of metaverse catching on in the enterprise world, we are seeing growing interest in providing customers and users with immersive online experiences using XR or extended reality. Let me give you a couple of examples. A leading U.S.-based communication service provider faced with the challenge of driving retail sales while physical stores were seeing lower footfall during the pandemic partnered with TCS to provide a personalized at-home experience of a real store. TCS organized the design thinking workshops to conceptualize and design a virtual replica of a store using passive VR, which customers can enter and virtually navigate on their mobile devices. Built using TCS Avapresence and the WebAR technology, the virtual store is accessible anytime from any device with virtual try on and try out features.
It has integrated commerce capabilities so customers can purchase the products and accessories on display just like in a physical store. The cloud-native framework made it easier to integrate with existing e-commerce platforms, provide real-time insight, and scale the solution. The virtual store has resulted in better customer engagement, a 30% increase in sales conversions, and an 80% growth in digital channel sales. For a marketing of a newly launched product, pre-filled injections, a leading medical devices manufacturer engaged TCS to provide an immersive experience for its healthcare partners to show them how the model can be conveniently self-administered. TCS came up with various options using AR experience and recommended the best approach to the client.
It used WebAR to create a realistic virtual 3D model of the injection which provides users with usage instructions on use through an immersive experience, obviating the need to go through lengthy user guides. The successful use of AR to market this product has led to interest in building similar experiences around their other products as well. Coming on to the Q4 order book, while these examples are continuing demand trends that we see in our order book and driving strong growth over the course of the year. In Q4, we had very strong deals resulting in an all-time high order book with TCV of $11.3 billion. This includes two mega-deals of roughly $1 billion each. Even excluding these two mega deals, our order book TCV in Q4 is at $9.5 billion, which is also an all-time high.
By vertical, BFSI had very strong TCV of $3.2 billion, while retail posted an order book of $2.6 billion. The TCV of deals signed in North America stood at $6.1 billion.
For the full year, our order book TCV was $34.6 billion, a growth of 9.5% over the prior year. With that, we can open the line for questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Good evening, everyone, and thank you for taking my questions. Congratulations especially on great deal wins during the quarter. My first question was around the margins. We had set our aspirational band above 26%. In the current context of the supply side constraint and especially for FY 2023, how do you see that aspirational band panning out? What are the headwinds and tailwinds we are looking at immediately in the next few quarters?
Yeah. Hi, Kumar. The 26-28 remains our guiding beacon. Our long-term cost structures are very well placed, and we firmly believe that we can operate in the 26%-28% band, based on our long-term cost structures. If you look at the near term, we will try to double down on our operational levers to help us get closer to this band. While if I look at from a short and near-term perspective, given what we are seeing across, especially in terms of the churn, till it plateaus down and completely goes back to our normal rates which we are looking at, we will see some volatility on margins. That's our view.
If I look at FY 2023 going forward, that would mean that, at least initially, we would be seeing some churn and pressure on margins.
How would the onsite wage hike impacts and how are we handling that? Given that now we'll be ramping up, the onsite as well with the travel resuming, how would be the wage hikes on the onsite side, and how are we looking to mitigate that impact?
Rakesh, this is Rajesh here. Overall, we think that salary hikes will be similar from a TCS perspective to what was there last year with a slightly upward bias. While there will be pressures at individual markets or individual capability sides, the hiring and pyramid rebalancing that has happened will also give us significant support. We think that as travel opens up more and more, our optimization levers will also increase. There is no one specific answer to it. If you take a given variable, of course those variables have their own unidirectional impact. In aggregate, we believe that the portfolio can lend itself for some optimization. Short-term volatility is to be expected.
Great. Thanks for that, Rajesh. One clarification. Early this month we had announced one large material deal win from a large American company. This quarter deal wins which we have announced of $11.6 billion, that includes that or $11.3 billion, it includes that or it's-
No, it includes that. We announced that. It happened just on the cusp of it, but this 11.3 includes that deal.
Got it. I'll fall back. Thank you. Thank you for that.
Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.
Thanks for taking my question, and congrats on a strong finish to the year. A couple of questions from my side. Sir, earlier on the press conference you had talked about some sets of your customers stepping back, and you kind of described it as backing up, not backing down. Could you kind of explain what that means in terms of the budget expectations or spending trends that you're seeing with some of those customers? That's question number 1. Question 2, from an overall perspective, if you were to look at your demand outlook and the confidence that you have on the outlook versus last year, how would you kind of rate that? Is it the same? Is the risk...
Are you seeing more risks, or how would you characterize that?
Thank you, Diviya. I think I answered that in the context of the Europe performance in the current quarter compared to the previous quarters in that perspective. What we see in Europe, typically across verticals is that you know, they are the ones which were most impacted by COVID because different countries were affected by COVID in different times, and they are a closely integrated economy, for one. Number 2 is that they're just about to also manage the Brexit, which happened during the past 15 months or so. Then now the war-like situation, war situation. All of that put together, you know, there is some thinking about you know, what should be the investment area. At the same time, there is an enormous focus on sustainability.
You know, whether it is across verticals, everybody in Europe is looking at sustainability as a big time agenda.
Looking at all of this, you know, there is a kind of stepping back and seeing where we invested, what should be the priorities for technology investments and so on, so on. In that context, you know, some readjustment and reorientation of budgets are taking place. As we explained in the press conference as well that you know technology is the solution for majority of the issues that they are facing. In that context, the technology spend continues to happen. There are some reallocations in terms of where they actually go and they spend the technology. To your second question on the overall demand outlook, you know, it looks very good.
I think, you know, with that kind of deal wins and the momentum that we have, we are clearly in a better position, now, compared to what we were in the previous financial year at the same time. That should all go well for our growth and, our aspirations for FY 2023.
That's very helpful. Thank you. I'll come back in the queue, if there is time. I wish you all the best.
Thank you.
Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Thanks for taking my question on a good quarter. I have only one question on the manpower side. Just wanted to understand that, you know, the situation we are going through is led by high demand and the supply is not matching it. Basically there is kind of, you know, stretching from one another. The real solution probably is the supply increasing. What is your sense, how will supply increase in next two quarters? Will it be completely through this fresher hiring which has happened in the past and the way we are hiring right now? Or you think that, you know, there are other ways to increase the supply, like cutting down the training time to accelerate the training program? There are some other options by which you can increase the supply.
Because I think that is where we are right now most hurt, and probably demand environment remains robust. What is your sense on supply issues pulling off? By when you think it will happen?
Sandip, Rajesh here. As you rightly pointed out, what we're seeing is a demand-supply mismatch. In our industry, fresher hiring and productive use of freshers is a long cycle activity. You've seen an industry-wide step-up of hiring for the last four quarters. We expect that as that supply hits productive use and that will ease up a lot of what was going on over the last few quarters. That's why when we say that as we look forward two quarters ahead, we think that ratio will continue to taper down and at least flatline first and then start tapering. The expectation is that bulk of this hiring that has gone on is across the industry in this last calendar year, that will start coming in and playing a role.
It's very similar to what you are saying, that there will be a bit of a lag. That's why we think that by Q4 by middle of the year we should see it.
Thank you. That's all from my side. Best of luck for the current quarter.
Thank you.
Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Thanks for taking my question. Rajesh, couple of quick ones. I mean, the changes in the operating structure that you mentioned and the participation across a wider spectrum now, how does that intersect with the hyperscaler deals? As a result of this, likely to reflect more in the $100 million client bucket? Or you think it's probably gonna reflect more in the $10 million category initially?
Apurva, let me explain what we are doing and, hopefully that'll answer the question. The services are focused on cloud and hyperscalers is independent of what we're doing on the structure side. On the structure side, what we're doing is we are realigning our governance to bring in focus in our engagement models for customers across different points of their engagement with us. We are creating three different groups. One focused on customers who are at the early stage of their relationship with us. Typically in that stage, a customer is very focused on assessing whether TCS can deliver the specific project given to them.
As we, you know, go forward with that customer relationship, typically the focus shifts for many of our customers to try and see will TCS be a strategic vendor and around whom they can consolidate. Typically, most customers prefer to have one or two or three large vendors, and vendor consolidation is a common theme across our customer base. At that time, the question is. Do we have the full spectrum of services? Do we have an ability to deliver those services in a consolidated manner? Can we manage the relationship at a stepped-up level in terms of an enhanced support to them across both services as well as across geographical markets that they operate in, et cetera? The focus shifts to the full services model and our ability to scale up to be a strategic supplier to them.
As that phase passes through, the focus then shifts that, okay, can we step beyond being a scale strategic vendor to being a vendor who can participate well in their transformation initiatives and across a wide spectrum of their CXO initiatives. I laid it out in a very kind of a time-bound manner. Many times it might happen in different sequences, but broadly this is the sequence in which a relationship kind of develops. We are standing up different organizational groups that are focused on ensuring that the engagement models are aligned to these three stages of the customer relationship. The specific service that we offer, for example, at the early stage itself, the first project might be a product implementation or it could be a TCS IP being delivered, or it could be a transformative engagement on the GNT side.
It doesn't matter what that is. It is that project has to be executed. That is the proof point of the early part of the relationship. Whether it is hyperscaler, not hyperscaler, whether it is GNT not, that is not actually, you know, pre-decided based on any of these three structures. It is more the way the engagement is governed that is being set up. I hope that answers your question.
Yeah, Rajesh, that clarifies. I was also actually trying to understand how does that reflect in the $100 million versus $10 million. I'm assuming it's the latter initially. I get the point. My second question, Rajesh, is you did earlier mention of TCV reverting to $8 billion-$8.5 billion. Want to understand from you how the mega deal pipeline is looking, and any additional color on the two mega deals?
Yeah. Apurva, that question was or rather that point was in a context I'll come to it. If you look at our commentary through the last few quarters, we have consistently maintained that the pipeline distribution of deal sizes is fairly even and similar to earlier periods. When a very large mega deal closes or not is very hard to predict. I think this quarter's numbers are a validation of the fact that there is nothing, no skew to the pipeline. It's not that the industry is shifting towards very large deals or very small deals. The quarter's results actually validate the point that we have been emphasizing over the last few quarters.
The point about $8.5 billion was more, I was saying that a better way to think about the overall pipeline progression and demand outlook is to look at the long-term trend line of the TCV. There we used to be in the $6.5 billion range, let's say eight quarters back, whereas we are now well into the $8+ billion range currently. That's the context of that $8.5 billion. It is not to say that $11.3 billion will immediately step down to $8.5 billion, but I was saying that we have seen a steady, you know, expansion of our base TCV levels, which is indication of the robust demand environment and the relevance of our services and market presence to the target customers that we have.
Got it. Just the second part of that on the two mega deals, and does that mean better line of sight to replicate the $3.5 billion incremental next year?
That is a very leading question which I shall take.
Thank you.
Thank you. The next question is from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks. Rajesh, two questions from my side. First one is on, you know, on the pricing and impact on margins. When you guys mentioned earlier that you are seeing, you know, some impact of pricing in part of your business, if you can zoom in a little bit on that segment. Is there a way to quantify, you know, the change of pricing which is happening now, you know, at this point of time versus maybe a year or two, you know, prior to this? You know, just moving that forward, is there something which can help you mitigate the margin pressure which is there?
Can that be more of a H2 event or is that impact going to flow through in FY 2024?
Difficult to put a timeframe to it, but let me try and give you some color on what's happening on the pricing side. Typically, renewals and other aspects of ongoing relationships, there's a slight uptick in terms of the pricing that we're seeing. It could manifest itself as COLA clauses being better enforceable, manifest itself in terms of renewals at a slightly increased price point with customers whom we have had a good relationship and also who have seen us stand by them during the pandemic period. That's the nature of the pricing. Whereas if you look at fresh new deals that are coming in, competitive intensity is quite high and the price points there are reflective of the nature of the work.
If it is a very wide field with lots of competition, the pricing reflects that. There is no one single answer to it. It is more the smaller aspects of it are where the slight uptick of pricing is happening. The cumulative impact of it will take some time to come through. For the full year, of course, gaining from the base effect of last year, we have had a net improvement in realization. For the quarter per se, actually the realization has been flattish. As I said, the cumulative effect will take some time for it to become a material impact. Sure. And the second question was on the net adds. You guys have done an incredible job of adding over 100K employees this year.
How should we look at this, given that you don't share, you know, broad utilization levels? How much of that adds this year, you know, was more to do with the future growth, you know, which you have visibility on? How much, you know, was there a portion which was to kind of ease out the stressed teams which are, you know, which saw very strong growth last year and hence got consumed there?
Mukul, N. G. S here. Overall, you know, we hired about 100,000 people, freshers, during the last financial year. We also initially thought that we hired about 40,000, but then we remained agile, and our hiring model kind of allowed us to source the required number of people at the right levels through the year. Taking that into account, we are planning to do the same thing. We will start to hire about 40,000 freshers. That is the target that we are setting ourselves for this year. Having said that, I think, you know, there is our utilization levels, including the freshers, has come down this quarter.
There is an opportunity for us to improve the utilization in the coming quarter as well as probably the H1 full. We're also looking at other levers, right? You know, the whole productivity will hopefully grow in the coming quarters. Combined with our approach to bringing people to work and then that should also see that certain amount of better utilization and better way of structuring the teams as we move forward as well, right? All this should contribute to a better utilization and better overall realization while we continue to look for the right talent. The majority of them will be organically grown as well, right?
The new organization structure and operating model that we have put in place also means that, you know, there are additional investments that we are making, and the talent is aligned to a curated customer journey that we are putting in place, right? At the entry level, the focus is more on the right amount of technology skills, the process orientation, making sure that the rigor in it is in delivery takes place, and the overall quality of experience is improved at the entry level. While at the top of the business transformation group, we look for talent specifically contributing to the growth and transformation programs that we look at, partly from the Contextual Masters programs that we have and partly from the local market knowledge that we'll be acquiring as well.
It's a very well-rounded thinking process by which, you know, a good amount of talent is sourced fresh, upskilled internally, as well as hired laterally, and align the right team and putting together horses for courses or courses for horses as the situation demands for it.
Sure. Thanks for answering my questions.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks for the opportunity. Rajesh, just, first question is in terms of this new operating model. TCS is always best known in terms of client mining efforts. Whether this new operating model will take into consideration an acceleration of a client mining efforts and whether the variable incentives of the same can be delivered and the other subject matter experts will have a laser-sharp focus in terms of mining across all the buckets. How this will provide an incremental benefit to TCS? Just that is what I wanted to understand.
Thanks, Sandeep. The model is more designed to ensure that the right talent in TCS is brought to bear at the right stage of the client relationship, so that we can maximize the value that we add to our customers. That's the main focus of it. More than incentivization, it is about choosing the right people and also setting up their support structures appropriately and investing in those aspects of the engagement model and also the distribution of people and customers and the kind of concentration that we have of relationships. That's the focus. A, more than incentive, it is about finding the right people for the right roles and structuring the roles in a more concentrated way. B, it is about making sure that we maximize the value that we add to our customers.
Just a second question. N. G. S in its comments has also said while entering FY 2023, we are more confident versus FY 2022. While what we foresee in FY 2023, there could be lot many macro-related issues. Is it our client discussion indicates that this time the correlation of the IT spend versus macro issue would no longer be that direct and the IT spend may not get impacted despite the macro-related issue as a whole? Just wanted to understand any client discussion which gives you any indication of concern in terms of reprioritization of spend, delay in terms of project starts or ramp of value.
Sandeep, you know, I mentioned that comment in the context of, you know, temporally speaking, where we were last year and where we are this year. You know, comparatively speaking, you know, I think, from our momentum that we see, the demand environment that we see and the pipeline and the deals that we have contracted, all that, when I compare it, I think we are in a better wicket compared to what we were at the same time last financial year, last year. That is the context in which I made that statement. Having said that, I think, you know, the macro issues, there are many comments being made. Economists, IMF has made a series of comments on this. World Health Organization has made certain comments. The war situations are there.
We are tracking all of this, and then we would have to stay agile and course correct ourselves as we execute our operations, number 1. Secondly, I think we also, what we feel is that, you know, whether it is in good time or in bad time or in a tough situation or in a very nice situation, technology is the answer. People, the investment bucket might change from one to the other, but then the technology spend is likely to remain robust. That's the way that we see things. That's the way that we also try and measure the impact on geopolitical risks or other macroeconomic indicators.
Okay. Just lastly, for these two large mega deals, is it possible to share the tenure of these two deals? Also, in cost of revenue line, this time the absolute travel cost has been one of the lowest in the fourth quarters of FY 2022. Will that remain in this level? Because work from office is starting across most of the vendors as a whole. What is the reason for such a lower cost on travel?
I'll answer the first part and then Samir will. Like, typically for larger deals, the deal tenure is somewhere in the 5-7 range. For deals which are closer to a billion, they are upwards of seven years. These deals are also similar to that. It's in the 7-10 year kind of a range, both the deals that we have.
On the travel cost, in fact, travel has been sluggish, specifically in the first two months of the quarter. Also there was moderation in visa costs during the quarter. As we have called out, we expect travel discretionary expenses to increase. This is, to that extent, an abnormality. We haven't seen the travel expenses increasing through the previous quarters, and that trend should continue.
Okay. Thanks, and congratulations on a great quarter. Thanks.
Thank you.
Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Thank you. Gentlemen, congratulations on a pretty good quarter of very strong bookings and extremely strong employee addition. First, I want to understand, you know, before typically in Q3 you have furloughs and lower number of working days with a lot of holidays, and before we really get the benefit of that, there's quite fewer days in the quarter. This time I think we've not really seen that, you know. Absolute incremental revenue has declined compared to what we were at in Q3. What were the headwinds, and, you know, did we not have any furloughs in Q3? You know, usual seasonality therefore does not apply.
One thing to look at in Q3, this quarter, Christmas was on holiday, so technically there was one more working day compared to usual we get. Furloughs did continue in Q3, but I think that is one if you look at from a working days perspective. Q3 had one more day because of the national or the global holiday being on a weekend.
Thanks. Thank you, Samir. Then in Europe, you know, we had a slight revenue decline in terms of. Actually, I think you mentioned in your first comments about the deal wins with Postbank. Is there anything else, you know, if there's any programs you know put on pause by clients because of the war situation in Ukraine or anything else that you see as temporary or is there anything that we should be more concerned about?
No, Ravi, I think it's more in terms of we got to see it in the perspective of what Q3 was a very strong number, so it's off that this growth should be seen. Beyond that, there's not much of a. It's just a normalization from the Q3. On Q3 we had 6%+ growth in Europe. Just, it's in that perspective.
Last question from our side. You know, we got now 14.3% YOY growth in constant currency terms, but, you know, your headcounts are nearly 21.3% YOY. You know, Indians did speak about utilization including training, something of that. You know, the trainings you would have-
Could I just take up a bit.
Yeah, sorry. In the first half of FY 2022, the trainees you onboarded, I would assume, have been largely deployed. It's not wholly deployed. You know, why this large gap between the employee addition and the revenue growth, you know. Should we say that this is just capacity that's built up because of the attrition and, you know, preparing for better growth? You're not really short of people, you know. Are we just playing safe?
Okay. If you're asking why is the mismatch in terms of when the employee addition happens and where the revenue comes. That really, we have been long-term focused, especially on our fresher hiring. It's a programmatic hiring approach that we have taken. We were one of the few companies that hired through the pandemic, honored every offer that we made and continued to hire through the pandemic. Our approach to fresher hiring has always been medium-term focused and not directly. I think the more the lateral hiring is the one that is more short-term one. Short-term side, as you can see from our subcontractor expenses, we are anyway running very tight on that. The lateral hiring continues. Fresher hiring is more, you know, longer-term focused. Medium to long-term focused.
Great. Thank you, Rajesh. Best of luck.
Okay.
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. The first one is, just your comment around Europe. You talked about some reallocation and reorientation of technology budgets. Just trying to understand how did this manifest in the client behavior in terms of timing of disclosures or decision-making cycles?
No, I think the reallocation of budgets comment I made in the context of, again, Europe, right? Where there are multiple scenarios emerging there. In certain verticals, sustainability is important pretty much, you know, across the, you know, client base that we see. Most of them, they want to see. They made some very strong commitments on the sustainability front and the goal front. From that perspective, one of the things that's happening is every program that they are doing, there is a very strong alignment to the sustainability goals and how the technology that they are implementing is going to be contributing to their sustainability goals. To that extent, you know, some amount of reallocation takes place.
The other thing is, actually the war situation currently means, you know, should we really look at it in the context of where we should invest, where, how we should do. Because we consciously some of the customers are asking us, to see whether we could, actually execute it from our Eastern European development centers. Because there is a skill sets that are coming and that they are available. Number 2 is that it's also the least that we can do at this point in time is to be meaningful to the communities in those countries, right? In that sense that there is some small amount of reallocation, rethinking that takes place in terms of how the technology can take place, how the allocation of the technology are from where the trend has to take place.
These are things that are being deliberated.
Okay. Thank you. The second question is around margins. You talked about volatility in margins in fiscal 2023. Is there any threshold level below which you'd want margins to not go or the focus will be largely to fulfill the demand without caring too much about the volatility in the near term?
We don't have any specific floor or cap on the margin front. Our commentary on margin has always been about where we think the overall opportunity is and where we think we can stabilize it at. Per se, as you said, we have never put margin over a given business or growth opportunity, but we stay very disciplined in chasing growth and we prefer profitable growth over everything else.
Okay. Thank you so much.
Yeah.
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.
Okay. Thank you. As I said, we had a strong well-rounded growth in Q4 which helped us close FY 2022 on a strong note, growing 16.8% in rupee terms and 15.4% in constant currency terms and 15.9% in dollar terms. Our margins continue to be industry-leading. The strong growth came from our customer-centric model, which visibly shows in our client metrics, where we have had strong addition across all revenue bands. We are now doubling down on that customer centricity by rolling out a new organization structure that will enable curated experiences for our customers depending on what stage they are at their relationship with TCS. The strength of demand for our services showed through in an all-time high order book during the quarter.
Even after excluding the two mega deals Q1 and Q4, we have hired fresh talent in record numbers this year in India and in our major markets while taking practical measures to retain our best talent in the midst of an elevated churn across the industry. Thank you all for joining us on this call today. Enjoy the rest of your evening or day and do stay safe. Thank you.
Thank you, members of the management. On behalf of TCS, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.